Self-Regulatory Organizations; The Options Clearing Corporation; Order Granting Approval of Accelerated Delivery of Supplement to the Options Disclosure Document Reflecting the Inclusion of Disclosure Regarding Foreign Currency Index Options and Implied Volatility Index Options, Certain Contract Adjustment Disclosures, and T+2 Settlement, 57778-57780 [2018-24988]
Download as PDF
<![CDATA[
57778
Federal Register / Vol. 83, No. 222 / Friday, November 16, 2018 / Notices
not available to other market
participants.
The Exchange’s proposal to expand
the Market Order Spread Protection to
permit the Exchange to establish
different thresholds for one or more
series or classes of options, the same as
Phlx, would apply uniformly to all
market participants.
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
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 15 and Rule 19b–
4(f)(6) thereunder.16
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 17 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 18
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has
requested that the Commission waive
the 30-day operative delay so that the
proposed rule change may become
operative upon filing. The Exchange
believes that waiver of the operative
delay would allow the Exchange to
update its rules without delay to reflect
the proposed amendments with respect
to QUO and OTTO at the same time as
it proposes to implement the new OTTO
functionality, and bring greater
transparency to the Exchange’s risk
protections. Additionally, the
Commission notes that the changes
relating to the OTTO protocol and risk
protections are based on the operation
of similar functionality on Nasdaq ISE
and Phlx, respectively. Therefore, the
15 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of 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. The Exchange
has satisfied this requirement.
17 17 CFR 240.19b–4(f)(6).
18 17 CFR 240.19b–4(f)(6)(iii).
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16 17
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Commission believes that waiver of the
30-day operative delay is consistent
with the protection of investors and the
public interest. Accordingly, the
Commission hereby waives the
operative delay and designates the
proposed rule change operative upon
filing.19
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. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
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–NASDAQ–2018–085, and
should be submitted on or before
December 7, 2018.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Eduardo A. Aleman,
Assistant Secretary.
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–
NASDAQ–2018–085 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
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–NASDAQ–2018–085. 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
[FR Doc. 2018–24981 Filed 11–15–18; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–84565; File No. SR–ODD–
2018–01]
Self-Regulatory Organizations; The
Options Clearing Corporation; Order
Granting Approval of Accelerated
Delivery of Supplement to the Options
Disclosure Document Reflecting the
Inclusion of Disclosure Regarding
Foreign Currency Index Options and
Implied Volatility Index Options,
Certain Contract Adjustment
Disclosures, and T+2 Settlement
November 9, 2018.
On October 24, 2018, the Options
Clearing Corporation (‘‘OCC’’) submitted
to the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Rule 9b–1 under the Securities
Exchange Act of 1934 (‘‘Act’’),1 five
preliminary copies of a supplement to
amend the options disclosure document
(‘‘ODD’’) to include disclosure regarding
foreign currency index options and
implied volatility index options, certain
contract adjustment disclosures, and
T+2 settlement (‘‘October 2018
Supplement’’).2 On October 25, 2018,
20 17
19 For
purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
PO 00000
Frm 00065
Fmt 4703
Sfmt 4703
CFR 200.30–3(a)(12).
CFR 240.9b–1.
2 See email from Marcie Pomper, Corporate
Assistant, OCC, to Sharon Lawson and David
Michehl, Division of Trading and Markets
(‘‘Division’’), Commission, dated October 24, 2018.
1 17
E:\FR\FM\16NON1.SGM
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Federal Register / Vol. 83, No. 222 / Friday, November 16, 2018 / Notices
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the Commission received from the OCC
five definitive copies of the October
2018 Supplement.3
The October 2018 Supplement
consists of three parts. Part I addresses
foreign currency index options and
implied volatility index options. It
amends and restates the April 2015
Supplement 4 in its entirety and
includes additional changes to take into
account a recently approved proposed
rule change allowing the listing of a new
implied volatility index option.5 The
April 2015 Supplement was never
distributed to options customers. The
OCC issued an information memo on
May 22, 2015 6 to inform its clearing
members and investors that the April
2015 Supplement would be amended
and replaced in its entirety in order to
accommodate other implied volatility
index options proposed for trading by a
different participant options exchange.
Part I of the October 2018 Supplement
serves as that replacement. Part II of the
October 2018 Supplement addresses
additional contract adjustment
disclosures. Part III of the October 2018
Supplement provides for the change in
settlement from T+3 to T+2.
The October 2018 Supplement
accommodates the introduction of
options on foreign currency indexes and
implied volatility options whose
exercise settlement value is calculated
differently than that of existing implied
volatility options.
Currently, the ODD states that indexes
that may underlie options include stock
indexes, variability indexes, strategybased indexes, dividend indexes, and
relative performance indexes. In April
2013, the Commission approved a
proposed rule change by the
International Securities Exchange, LLC
(‘‘ISE’’) to list options on the Dow Jones
FXCM Dollar Index.7 The October 2018
Supplement amends disclosures in the
ODD to add foreign currency indexes as
a type of index that can underlie an
option, in order to accommodate the
trading of options on the Dow Jones
FXCM Dollar Index and similarly
structured foreign currency indexes.8
3 See letter from Karen Bilek, Vice President and
Counsel, OCC, to Sharon Lawson, Senior Special
Counsel, Division, Commission, dated October 24,
2018. The October 2018 Supplement also makes
certain technical non-substantive amendments to
the ODD.
4 https://www.sec.gov/rules/sro/occ/occarchive/
occarchive2015.shtml#odd.
5 See infra note 10.
6 See OCC Information Memo No. 36788 available
at https://www.theocc.com.
7 See Securities Exchange Act Release No. 69365
(April 11, 2013), 78 FR 23321 (April 18, 2013) (SR–
ISE–2013–14).
8 The October 2018 Supplement is intended to
accommodate the trading of options on foreign
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17:19 Nov 15, 2018
Jkt 247001
Specifically, the October 2018
Supplement adds new disclosure
regarding the characteristics of foreign
currency index options and their special
risks. In addition, the supplement adds
an example of the calculation of a
foreign currency index. The supplement
also amends disclosures in the ODD to
accommodate the fact that components
of foreign currency indexes are foreign
currencies rather than securities (e.g., by
referring to ‘‘components’’ of an index
rather than ‘‘constituent securities’’ of
an index).
The ODD currently contains general
disclosures on the characteristics and
risks of trading standardized options on
variability indexes. The ODD states that
variability indexes are indexes intended
to measure the implied volatility, or the
realized variance or volatility, of
specified stock indexes or specified
securities. In January 2014, the
Commission approved a proposed rule
change by the ISE to list options on the
Nations VolDex Index.9 In October
2018, the Commission approved a
proposed rule change by the Miami
International Securities Exchange, LLC
to list options on the SPIKES Index.10
The October 2018 Supplement
amends disclosures in the ODD
regarding implied volatility index
options to accommodate the listing of
options on the Nations VolDex Index,
the SPIKES Index and other similarly
structured implied volatility indexes.11
Specifically, the October 2018
Supplement amends the discussion of
implied volatility index options by
including disclosure regarding exercise
settlement value calculations that use
the mid-point of the bid and offer of the
index components or actual trade prices
and the risks of the different calculation
methodologies. The supplement also
provides disclosure regarding the types
of options that can be used to calculate
implied volatility indexes (i.e., out-ofthe-money option series and
hypothetical at-the-money option series;
options with certain expiration months
currency indexes that reflect the value of one
currency, often the U.S. dollar, against a basket of
foreign currencies. Foreign currency indexes are
calculated using exchange rates.
9 See Securities Exchange Act Release No. 71365
(January 22, 2014), 79 FR 4512 (January 28, 2014)
(SR–ISE–2013–42).
10 See Securities Exchange Act Release No. 84417
(October 12, 2018), 83 FR 52865 (October 18, 2018)
(SR–MIAX–2018–14).
11 The exercise settlement value for the Nations
VolDex Index is calculated using the mid-point of
the NBBO for the component options of the index
while the SPIKES Index uses a ‘‘price dragging’’
technique when determining the ongoing price for
each individual option used in the calculation of
the index. Most other index settlement values are
calculated using transaction prices of the index
components.
PO 00000
Frm 00066
Fmt 4703
Sfmt 4703
57779
or weeks; number of days the options
have until expiration).
The October 2018 Supplement also
amends the ODD to reflect that
adjustments to some of the terms of
options contracts, to account for certain
events, such as certain dividend
distributions or other corporate actions
that affect the underlying security or
other underlying interest, will be made
by the OCC rather than an adjustment
panel of the Securities Committee.12
Adjustment determinations were
previously made by adjustment panels
that consisted of two representatives of
each U.S. options market on which a
series is traded and one representative
of the OCC, who voted only to break a
tie. Determinations as to whether to
adjust outstanding options in response
to a particular event, and, if so, in what
manner, are now made solely by the
OCC taking into consideration policies
established by representatives of each of
the U.S. options markets on which the
effected option trades and a
representative of OCC. Panels, however,
consisting of representatives of each of
the U.S. options markets on which the
affected series of options is traded and
one representative of the OCC retain
their function and authority under other
provisions of the OCC’s rules to fix
exercise settlement amounts and cash
settlement amounts in certain
circumstances. The Supplement amends
references to these panels, eliminating
potential confusion with the Securities
Committee, which will continue to
determine the appropriateness of
adopting prospective policy changes or
clarifications. The October 2018
Supplement includes additional
clarification and examples regarding
how certain adjustments may affect an
option’s value and deletes certain
obsolete language.
Finally, the October 2018 Supplement
makes changes necessary to reflect that
the regular exercise settlement date for
physical delivery stock options has
moved from the third business date
following exercise (T+3) to the second
business date following exercise (T+2).
The October 2018 Supplement is
intended to be read in conjunction with
the more general ODD, which discusses
the characteristics and risks of options
generally.13
12 See Securities Exchange Act Release No. 69977
(July 11, 2013), 78 FR 42815 (July 17, 2013) (SR–
OCC–2013–05).
13 The Commission notes that the options markets
must continue to ensure that the ODD is in
compliance with the requirements of Rule 9b–
1(b)(2)(i) under the Act, 17 CFR 240.9b–1(b)(2)(i),
including when changes regarding foreign currency
index options and implied volatility index options
E:\FR\FM\16NON1.SGM
Continued
16NON1
57780
Federal Register / Vol. 83, No. 222 / Friday, November 16, 2018 / Notices
Rule 9b–1(b)(2)(i) under the Act 14
provides that an options market must
file five copies of an amendment or
supplement to the ODD with the
Commission at least 30 days prior to the
date definitive copies are furnished to
customers, unless the Commission
determines otherwise, having due
regard to the adequacy of the
information disclosed and the public
interest and protection of investors.15 In
addition, five copies of the definitive
ODD, as amended or supplemented,
must be filed with the Commission not
later than the date the amendment or
supplement, or the amended ODD, is
furnished to customers. The
Commission has reviewed the October
2018 Supplement, and the amendments
to the ODD contained therein, and finds
that, having due regard to the adequacy
of the information disclosed and the
public interest and protection of
investors, the supplement may be
furnished to customers as of the date of
this order.
It is therefore ordered, pursuant to
Rule 9b–1 under the Act,16 that
definitive copies of the October 2018
Supplement to the ODD (SR–ODD–
2018–01), reflecting the inclusion of
disclosure regarding foreign currency
index options and implied volatility
index options, certain contract
adjustment disclosures, and T+2
settlement, may be furnished to
customers as of the date of this order.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–24988 Filed 11–15–18; 8:45 am]
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BILLING CODE 8011–01–P
are made in the future. Any future changes to the
rules of the options markets concerning foreign
currency index options and implied volatility index
options would need to be submitted to the
Commission under Section 19(b) of the Act. 15
U.S.C. 78s(b).
14 17 CFR 240.9b–1(b)(2)(i).
15 This provision permits the Commission to
shorten or lengthen the period of time which must
elapse before definitive copies may be furnished to
customers.
16 17 CFR 240.9b–1.
17 17 CFR 200.30–3(a)(39).
VerDate Sep<11>2014
17:19 Nov 15, 2018
Jkt 247001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84561; File No. SR–CFE–
2018–003]
Self-Regulatory Organizations; Cboe
Futures Exchange, LLC; Notice of a
Filing of a Proposed Rule Change
Regarding Block Trade and Exchange
of Contract for Related Position
Reporting Provisions
November 9, 2018.
Pursuant to Section 19(b)(7) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 notice is hereby given that on
November 2, 2018 Cboe Futures
Exchange, LLC (‘‘CFE’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change described in
Items I, II, and III below, which Items
have been prepared by CFE. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons. CFE
also has filed this proposed rule change
with the Commodity Futures Trading
Commission (‘‘CFTC’’). CFE filed a
written certification with the CFTC
under Section 5c(c) of the Commodity
Exchange Act (‘‘CEA’’) 2 on November 2,
2018.
I. Self-Regulatory Organization’s
Description of the Proposed Rule
Change
The Exchange proposes to amend
reporting provisions under CFE Rules
414, 415, and 714 relating to Block
Trades and Exchange of Contract for
Related Position (‘‘ECRP’’) transactions.
The scope of this filing is limited solely
to the application of the proposed rule
amendments to security futures that
may be traded on CFE. Although no
security futures are currently listed for
trading on CFE, CFE may list security
futures for trading in the future. The text
of the proposed rule change is attached
as Exhibit 4 to the filing but is not
attached to the publication of this
notice.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, CFE
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. CFE has prepared
1 15
27
PO 00000
U.S.C. 78s(b)(7).
U.S.C. 7a–2(c).
Frm 00067
Fmt 4703
Sfmt 4703
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The proposed rule change revises the
criteria for who can act as an
Authorized Reporter for Exchange of
Contract for Related Position (‘‘ECRP’’)
transactions and Block Trades and to
allow for the assessment of summary
fines for violations of two comparable
ECRP and Block Trade reporting
provisions.
The first two changes provided for in
the proposed rule change relate to who
can act as an Authorized Reporter for
ECRP transactions and Block Trades.
CFE Rule 414 (Exchange of Contract for
Related Position) governs ECRP
transactions and CFE Rule 415 (Block
Trades) governs Block Trades. Rule
414(i) and Rule 415(f) provide that each
CFE Trading Privilege Holder (‘‘TPH’’)
executing an ECRP transaction or Block
Trade, as applicable, must have at least
one designated individual that is either
a TPH or a Related Party 3 of a TPH and
that is pre-authorized by a Clearing
Member to report ECRP transactions and
Block Trades on behalf of the TPH. An
individual designated for this purpose is
referred to as an Authorized Reporter.
CFE is proposing to amend Rule 414(i)
and Rule 415(f) to remove the
requirement that an Authorized
Reporter must be a TPH or a Related
Party of a TPH. CFE is also proposing
to amend Rule 414(i) and Rule 415(f) to
make clear that, to the extent required
by applicable law, an Authorized
Reporter must be registered or otherwise
permitted by the appropriate regulatory
body or bodies to act in the capacity of
an Authorized Reporter and to conduct
related activities.
CFE understands from TPHs that
there are service providers that perform
reporting functions that are similar to
ECRP transaction and Block Trade
reporting and that there are TPHs that
would like to utilize individuals from
these service providers (who are not
either a TPH or a Related Party of a
TPH) to act as an Authorized Reporter
for ECRP transactions and Block Trades
3 Chapter 1 of CFE’s Rulebook provides that: The
term ‘‘Related Party’’ means, with respect to any
TPH: Any partner, director, officer, branch manager,
employee or agent of such TPH (or any Person
occupying a similar status or performing similar
functions); any Person directly or indirectly
Controlling, Controlled by, or under common
Control with, such TPH; or any Authorized Trader
of such TPH.
E:\FR\FM\16NON1.SGM
16NON1
]]>Agencies
[Federal Register Volume 83, Number 222 (Friday, November 16, 2018)]
[Notices]
[Pages 57778-57780]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-24988]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84565; File No. SR-ODD-2018-01]
Self-Regulatory Organizations; The Options Clearing Corporation;
Order Granting Approval of Accelerated Delivery of Supplement to the
Options Disclosure Document Reflecting the Inclusion of Disclosure
Regarding Foreign Currency Index Options and Implied Volatility Index
Options, Certain Contract Adjustment Disclosures, and T+2 Settlement
November 9, 2018.
On October 24, 2018, the Options Clearing Corporation (``OCC'')
submitted to the Securities and Exchange Commission (``Commission''),
pursuant to Rule 9b-1 under the Securities Exchange Act of 1934
(``Act''),\1\ five preliminary copies of a supplement to amend the
options disclosure document (``ODD'') to include disclosure regarding
foreign currency index options and implied volatility index options,
certain contract adjustment disclosures, and T+2 settlement (``October
2018 Supplement'').\2\ On October 25, 2018,
[[Page 57779]]
the Commission received from the OCC five definitive copies of the
October 2018 Supplement.\3\
---------------------------------------------------------------------------
\1\ 17 CFR 240.9b-1.
\2\ See email from Marcie Pomper, Corporate Assistant, OCC, to
Sharon Lawson and David Michehl, Division of Trading and Markets
(``Division''), Commission, dated October 24, 2018.
\3\ See letter from Karen Bilek, Vice President and Counsel,
OCC, to Sharon Lawson, Senior Special Counsel, Division, Commission,
dated October 24, 2018. The October 2018 Supplement also makes
certain technical non-substantive amendments to the ODD.
---------------------------------------------------------------------------
The October 2018 Supplement consists of three parts. Part I
addresses foreign currency index options and implied volatility index
options. It amends and restates the April 2015 Supplement \4\ in its
entirety and includes additional changes to take into account a
recently approved proposed rule change allowing the listing of a new
implied volatility index option.\5\ The April 2015 Supplement was never
distributed to options customers. The OCC issued an information memo on
May 22, 2015 \6\ to inform its clearing members and investors that the
April 2015 Supplement would be amended and replaced in its entirety in
order to accommodate other implied volatility index options proposed
for trading by a different participant options exchange. Part I of the
October 2018 Supplement serves as that replacement. Part II of the
October 2018 Supplement addresses additional contract adjustment
disclosures. Part III of the October 2018 Supplement provides for the
change in settlement from T+3 to T+2.
---------------------------------------------------------------------------
\4\ https://www.sec.gov/rules/sro/occ/occarchive/occarchive2015.shtml#odd.
\5\ See infra note 10.
\6\ See OCC Information Memo No. 36788 available at https://www.theocc.com.
---------------------------------------------------------------------------
The October 2018 Supplement accommodates the introduction of
options on foreign currency indexes and implied volatility options
whose exercise settlement value is calculated differently than that of
existing implied volatility options.
Currently, the ODD states that indexes that may underlie options
include stock indexes, variability indexes, strategy-based indexes,
dividend indexes, and relative performance indexes. In April 2013, the
Commission approved a proposed rule change by the International
Securities Exchange, LLC (``ISE'') to list options on the Dow Jones
FXCM Dollar Index.\7\ The October 2018 Supplement amends disclosures in
the ODD to add foreign currency indexes as a type of index that can
underlie an option, in order to accommodate the trading of options on
the Dow Jones FXCM Dollar Index and similarly structured foreign
currency indexes.\8\ Specifically, the October 2018 Supplement adds new
disclosure regarding the characteristics of foreign currency index
options and their special risks. In addition, the supplement adds an
example of the calculation of a foreign currency index. The supplement
also amends disclosures in the ODD to accommodate the fact that
components of foreign currency indexes are foreign currencies rather
than securities (e.g., by referring to ``components'' of an index
rather than ``constituent securities'' of an index).
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 69365 (April 11,
2013), 78 FR 23321 (April 18, 2013) (SR-ISE-2013-14).
\8\ The October 2018 Supplement is intended to accommodate the
trading of options on foreign currency indexes that reflect the
value of one currency, often the U.S. dollar, against a basket of
foreign currencies. Foreign currency indexes are calculated using
exchange rates.
---------------------------------------------------------------------------
The ODD currently contains general disclosures on the
characteristics and risks of trading standardized options on
variability indexes. The ODD states that variability indexes are
indexes intended to measure the implied volatility, or the realized
variance or volatility, of specified stock indexes or specified
securities. In January 2014, the Commission approved a proposed rule
change by the ISE to list options on the Nations VolDex Index.\9\ In
October 2018, the Commission approved a proposed rule change by the
Miami International Securities Exchange, LLC to list options on the
SPIKES Index.\10\
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 71365 (January 22,
2014), 79 FR 4512 (January 28, 2014) (SR-ISE-2013-42).
\10\ See Securities Exchange Act Release No. 84417 (October 12,
2018), 83 FR 52865 (October 18, 2018) (SR-MIAX-2018-14).
---------------------------------------------------------------------------
The October 2018 Supplement amends disclosures in the ODD regarding
implied volatility index options to accommodate the listing of options
on the Nations VolDex Index, the SPIKES Index and other similarly
structured implied volatility indexes.\11\ Specifically, the October
2018 Supplement amends the discussion of implied volatility index
options by including disclosure regarding exercise settlement value
calculations that use the mid-point of the bid and offer of the index
components or actual trade prices and the risks of the different
calculation methodologies. The supplement also provides disclosure
regarding the types of options that can be used to calculate implied
volatility indexes (i.e., out-of-the-money option series and
hypothetical at-the-money option series; options with certain
expiration months or weeks; number of days the options have until
expiration).
---------------------------------------------------------------------------
\11\ The exercise settlement value for the Nations VolDex Index
is calculated using the mid-point of the NBBO for the component
options of the index while the SPIKES Index uses a ``price
dragging'' technique when determining the ongoing price for each
individual option used in the calculation of the index. Most other
index settlement values are calculated using transaction prices of
the index components.
---------------------------------------------------------------------------
The October 2018 Supplement also amends the ODD to reflect that
adjustments to some of the terms of options contracts, to account for
certain events, such as certain dividend distributions or other
corporate actions that affect the underlying security or other
underlying interest, will be made by the OCC rather than an adjustment
panel of the Securities Committee.\12\ Adjustment determinations were
previously made by adjustment panels that consisted of two
representatives of each U.S. options market on which a series is traded
and one representative of the OCC, who voted only to break a tie.
Determinations as to whether to adjust outstanding options in response
to a particular event, and, if so, in what manner, are now made solely
by the OCC taking into consideration policies established by
representatives of each of the U.S. options markets on which the
effected option trades and a representative of OCC. Panels, however,
consisting of representatives of each of the U.S. options markets on
which the affected series of options is traded and one representative
of the OCC retain their function and authority under other provisions
of the OCC's rules to fix exercise settlement amounts and cash
settlement amounts in certain circumstances. The Supplement amends
references to these panels, eliminating potential confusion with the
Securities Committee, which will continue to determine the
appropriateness of adopting prospective policy changes or
clarifications. The October 2018 Supplement includes additional
clarification and examples regarding how certain adjustments may affect
an option's value and deletes certain obsolete language.
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\12\ See Securities Exchange Act Release No. 69977 (July 11,
2013), 78 FR 42815 (July 17, 2013) (SR-OCC-2013-05).
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Finally, the October 2018 Supplement makes changes necessary to
reflect that the regular exercise settlement date for physical delivery
stock options has moved from the third business date following exercise
(T+3) to the second business date following exercise (T+2).
The October 2018 Supplement is intended to be read in conjunction
with the more general ODD, which discusses the characteristics and
risks of options generally.\13\
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\13\ The Commission notes that the options markets must continue
to ensure that the ODD is in compliance with the requirements of
Rule 9b-1(b)(2)(i) under the Act, 17 CFR 240.9b-1(b)(2)(i),
including when changes regarding foreign currency index options and
implied volatility index options are made in the future. Any future
changes to the rules of the options markets concerning foreign
currency index options and implied volatility index options would
need to be submitted to the Commission under Section 19(b) of the
Act. 15 U.S.C. 78s(b).
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Rule 9b-1(b)(2)(i) under the Act \14\ provides that an options
market must file five copies of an amendment or supplement to the ODD
with the Commission at least 30 days prior to the date definitive
copies are furnished to customers, unless the Commission determines
otherwise, having due regard to the adequacy of the information
disclosed and the public interest and protection of investors.\15\ In
addition, five copies of the definitive ODD, as amended or
supplemented, must be filed with the Commission not later than the date
the amendment or supplement, or the amended ODD, is furnished to
customers. The Commission has reviewed the October 2018 Supplement, and
the amendments to the ODD contained therein, and finds that, having due
regard to the adequacy of the information disclosed and the public
interest and protection of investors, the supplement may be furnished
to customers as of the date of this order.
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\14\ 17 CFR 240.9b-1(b)(2)(i).
\15\ This provision permits the Commission to shorten or
lengthen the period of time which must elapse before definitive
copies may be furnished to customers.
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It is therefore ordered, pursuant to Rule 9b-1 under the Act,\16\
that definitive copies of the October 2018 Supplement to the ODD (SR-
ODD-2018-01), reflecting the inclusion of disclosure regarding foreign
currency index options and implied volatility index options, certain
contract adjustment disclosures, and T+2 settlement, may be furnished
to customers as of the date of this order.
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\16\ 17 CFR 240.9b-1.
\17\ 17 CFR 200.30-3(a)(39).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-24988 Filed 11-15-18; 8:45 am]
BILLING CODE 8011-01-P
