Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Concerning the Option Clearing Corporation's Interpretative Guidance on Contract Adjustments for Cash Dividends and Distributions, 16043-16047 [2024-04698]

Download as PDF Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Notices proposed rule change to amend FINRA Rule 6730 to reduce the 15-minute TRACE reporting timeframe to one minute, with exceptions for member firms with de minimis reporting activity and for manual trades. The proposed rule change was published for comment in the Federal Register on January 25, 2024.3 section 19(b)(2) of the Act 4 provides that, within 45 days of the publication of notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or as to which the self-regulatory organization consents, the Commission shall either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. The 45th day after publication of the notice for this proposed rule change is March 10, 2024. The Commission is extending this 45-day time period for Commission action. The Commission finds that it is appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change and the comments received. Accordingly, pursuant to section 19(b)(2) of the Act, the Commission designates April 24, 2024, as the date by which the Commission shall approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change (File No. SR– FINRA–2024–004). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.5 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–04697 Filed 3–5–24; 8:45 am] ddrumheller on DSK120RN23PROD with NOTICES1 BILLING CODE 8011–01–P 3 See Securities Exchange Act Release No. 99404 (January 19, 2024), 89 FR 5034 (January 25, 2024). Comments received on the proposed rule change are available at: https://www.sec.gov/comments/srfinra-2024-004/srfinra2024004.htm. 4 15 U.S.C. 78s(b)(2). 5 17 CFR 200.30–3(a)(31). VerDate Sep<11>2014 16:57 Mar 05, 2024 Jkt 262001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99641; File No. SR–OCC– 2024–003] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Concerning the Option Clearing Corporation’s Interpretative Guidance on Contract Adjustments for Cash Dividends and Distributions February 29, 2024. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on February 20, 2024, The Options Clearing Corporation (‘‘OCC’’ or ‘‘Corporation’’) 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 primarily by OCC. OCC filed the proposed rule change pursuant to Section 19(b)(3)(A)(i) 3 of the Act and Rule 19b–4(f)(1) 4 thereunder, such that the proposed rule change was immediately effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change This proposed rule change would reissue interpretative guidance relating to the adjustment of stock options for cash dividends and distributions on underlying securities with certain amendments, including (1) to reflect previously approved changes in the process for making such adjustment determinations; and (2) to address OCC’s general approach to certain additional scenarios. Amendments to the interpretative guidance, are included in Exhibit 5 of File No. SR– OCC–2024–003. Material proposed to be added is marked by underlining, and material proposed to be deleted is marked with strikethrough text. All terms with initial capitalization that are not otherwise defined herein have the same meaning as set forth in the ByLaws and Rules.5 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(i). 4 17 CFR 240.19b–4(f)(1). 5 OCC’s By-Laws and Rules can be found on OCC’s public website: https://www.theocc.com/ Company-Information/Documents-and-Archives/ By-Laws-and-Rules. 2 17 PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 16043 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 OCC is the issuer of and sole clearing agency for standardized equity options listed on national securities exchanges registered with the Commission. In accordance with OCC’s By-Laws, adjustments may be made to some of the standardized terms of outstanding options upon the occurrence of certain events related to the underlying security, such as a stock dividend, stock distribution, stock split, reverse stock split, rights offering, distribution, reorganization, recapitalization, reclassification in respect of an underlying security, or a merger, consolidation, dissolution or liquidation of the issuer of the underlying security.6 The determination whether to adjust outstanding options in response to a particular event, and, if so, what the adjustment should be, is made by OCC, taking into consideration policies and interpretations established in OCC’s ByLaws and any policies and interpretations having general application to specific types of events or specified kinds of cleared contracts established by a committee (the ‘‘Securities Committee’’) consisting of representatives of each of the U.S. options markets and a representative of OCC.7 OCC previously filed with the Commission and issued interpretative guidance concerning the application of OCC’s adjustment policies and procedures and other adjustment rules 6 Adjustments for listed options are discussed at length in the Characteristics and Risks of Standardized Options (‘‘Options Disclosure Document’’ or ‘‘ODD’’), which broker-dealers are required to provide to a customer prior to accepting an order to purchase or sell a listed option. See 17 CFR 240.9b–1. The Options Disclosure Document is also available on OCC’s website: https:// www.theocc.com/company-information/documentsand-archives/options-disclosure-document. 7 See OCC By-Laws, Art. VI § 11. E:\FR\FM\06MRN1.SGM 06MRN1 16044 Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Notices for cash dividends.8 In the interest of promoting clarity and transparency for market participants, OCC is proposing to re-issue that interpretative guidance subject to proposed amendments that would (1) update the interpretative guidance’s discussion of how adjustment determinations are made to reflect subsequent changes to the determination process since the interpretative guidance was last issued, and (2) provide additional guidance on certain underlying events.9 OCC does not propose to change its policies or practices with respect to such contract adjustments. OCC merely proposes to publish guidance reflecting its current policies and practices. Accordingly, OCC does not believe that this proposed change would have any impact on market participants other than to provide them with additional information. (1) Purpose ddrumheller on DSK120RN23PROD with NOTICES1 Background OCC’s By-Laws and Rules authorize OCC to make adjustments to listed options when certain events occur related to the underlying security, such as a stock dividend, stock distribution, stock split, reverse stock split, rights offering, distribution, reorganization, recapitalization, or reclassification with respect to the underlying security or the merger, consolidation, dissolution or liquidation of the issuer of the underlying security. The By-Laws provide policies and procedures for making such determinations, including that OCC determines whether to adjust a contract, taking into account such 8 See, e.g., Exchange Act Release No. 68531 (Dec. 21, 2012), 77 FR 77157 (Dec. 31, 2012) (SR–OCC– 2012–26). 9 Consistent with prior practice, the interpretative guidance would be issued as an OCC Information Memorandum that would supersede the previously published Information Memoranda related to this interpretative guidance. The Information Memorandum would contain prefatory material intended to provide context for its issuance, remind readers of its relationship to the prior Information Memoranda and this proposed rule change, and summarize the relevant OCC By-Laws that are the subject of the interpretation. OCC does not believe this prefatory material is a rule within the meaning of Section 19(b) of the Exchange Act, 15 U.S.C. 78s(b), and the regulations thereunder because unlike the interpretative guidance promulgated through this proposed rule change, the prefatory material it is not a stated policy, practice or interpretation that establishes or changes any standard, limit, or guideline with respect to the rights, obligations or privileges of specified persons or the meaning, administration, or enforcement of an existing rule. See 17 CFR 240.19b–4(a)(6)(ii). Nor does the prefatory material constitute a material aspect of the operation of OCC. See 17 CFR 240.19b–4(a)(6)(i). OCC is providing a copy of the Information Memorandum it intends to issue upon implementation of the new guidance as Exhibit 3 to File No. SR–OCC–2024–003. VerDate Sep<11>2014 16:57 Mar 05, 2024 Jkt 262001 factors as fairness to holders and writers (or purchasers and sellers) of the affected contracts, the maintenance of a fair and orderly market in the affected contracts, consistency of interpretation and practice, efficiency of exercise settlement procedures, and the coordination with other clearing agencies of the clearance and settlement of transactions in the underlying interest.10 OCC applies these factors to a particular corporate action on a caseby-case basis, considering the circumstances known to it at the time the determination is made, subject to OCC’s discretion to depart from policy and precedent when the Corporation determines that unusual circumstances make such a departure appropriate.11 OCC’s By-Laws also provide general rules applicable to specific types of corporate actions, including with respect to cash dividends or distributions made by the issuer of an underlying security. For example, the By-Laws establish a general rule that OCC does not adjust listed options to reflect ‘‘ordinary cash dividends or distributions,’’ which the By-Laws define to mean ‘‘[c]ash dividends or distributions (regardless of size) by the issuer of the underlying security which [OCC] believes to have been declared pursuant to a policy or practice of paying such dividends or distributions on a quarterly or other regular basis or which [OCC] believes represents an acceleration or deferral of such payments.’’ 12 OCC established this general rule because when an issuer’s policy or practice of paying such dividends is public, such ordinary dividends can be priced into options premiums.13 OCC’s By-Laws also provide that for cash dividends not declared pursuant to an issuer’s policy or practice of paying such distributions at regular intervals (i.e., ‘‘special’’ cash dividends and distributions), OCC will not adjust if the amount distributed is less than $0.125 per share (or $12.50 per contract for listed options with a unit of trading larger than 100 shares). OCC established this de minimis threshold in part to avoid the proliferation of outstanding option symbols and series.14 10 See OCC By-Laws, Art. VI § 11(a). 11 Id. 12 See OCC By-Laws, Art. VI § 11A, Interpretation and Policy .01. 13 See Exchange Act Release No. 55258 (Feb 8, 2007), 72 FR 7701, 7703 (Feb. 16, 2007) (SR–OCC– 2006–01). 14 Symbols can proliferate when a dividend amount is added to the deliverable, yielding a nonstandard option. Id., at note 14 and accompanying text. The resulting non-standard options may be illiquid and difficult to trade. Following an PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 In connection with the adoption of the general rules against adjustments for cash dividends and distributions that are ordinary or below the de minimis threshold, OCC previously filed and published interpretative guidance promulgated by its Securities Committee to address questions about how those rules would be administered and applied.15 Presented in question and answer (‘‘Q&A’’) format, the interpretative guidance provided an overview of OCC’s adjustment policies with respect to cash dividends and guidance on the application of those policies in a variety of scenarios. OCC has since updated and re-issued that interpretative guidance, the last time in 2012.16 Based on its continued relevance to market participants seeking to understand how OCC applies its adjustment policies, OCC proposes to re-issue the interpretative guidance with certain updates discussed below. (1) Conforming Changes To Reflect the Current Determination Process The proposed changes would remove references to the adjustment panel of the Securities Committee in the interpretative guidance’s discussion of how options adjustments are made. Since the interpretative guidance was last issued in 2012, the Commission approved a proposed rule change that affected the determination process.17 Previously, an adjustment panel of the Securities Committee, consisting of representatives from the exchanges on which an option was listed and OCC’s Chairman, would make determinations about whether that option should be adjusted in response to a corporate action. Currently, adjustment determinations are made by OCC rather than adjustment panels of the Securities Committee.18 However, the Securities Committee still maintains a role in promulgating statements of policy and interpretations having general adjustment, exchanges typically introduce standard options with the same strikes. 15 See Exchange Act Release No. 58059 (June 30, 2008), 73 FR 39367 (July 9, 2008) (SR–OCC–2008– 10). 16 See Exchange Act Release No. 68531, supra note 6 [sic]. See also Exchange Act Release No. 66742 (Apr. 5, 2012), 77 FR 21819 (Apr. 11, 2012) (SR–OCC–2012–05); Exchange Act Release No. 59442 (Feb. 24, 2009), 74 FR 9654 (Mar. 5, 2009) (SR–OCC–2009–01). 17 See Exchange Act Release No. 69977 (July 11, 2013), 78 FR 42815 (July 17, 2013) (SR–OCC–2013– 05). 18 This change in governance arose from a request by the options exchanges promoted by a desire to consider ways to lessen investor confusion and enhance consistency in making option contract adjustments. See Exchange Act Release No. 69642 (May 28, 2013), 78 FR 33138, 33139 (June 3, 2013) (SR–OCC–2013–05). E:\FR\FM\06MRN1.SGM 06MRN1 Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Notices application to specified types of corporate actions or specified kinds of cleared contracts.19 In making adjustment determinations, OCC must consider such policy statements and interpretations in addition to the factors and general rules set forth in the ByLaws in light of the circumstances known to OCC at the time such determination is made, subject to OCC’s discretion to depart from policy or precedent when the OCC determines that unusual circumstances make such a departure appropriate.20 OCC assumed sole responsibility for making adjustment determinations after corresponding updates to the Options Disclosure Document were approved by the Commission in 2018.21 Accordingly, when OCC re-issues the interpretative guidance on cash dividends and distributions, OCC proposes to replace references to determinations made by an adjustment panel of the Securities Committee with references to OCC and make other non-substantive, textual edits to the interpretative guidance consistent with that change. These changes are intended to reflect the current, Commission-approved process for adjustment determinations made by OCC. ddrumheller on DSK120RN23PROD with NOTICES1 (2) Additional Interpretative Guidance OCC also proposes to add additional Q&As that would provide guidance for several situations OCC has observed since the interpretative guidance was last issued, including (a) specific guidance with respect to variable dividends, and (b) additional guidance with respect to dividends issued by real estate investment trusts (‘‘REITs’’). a. Variable Dividends OCC has seen an increase in the number of issuers that have established policies or practices of distributing ‘‘variable dividends.’’ Typically, such variable dividends are paid at regular intervals if issuer-defined thresholds for paying the dividends are met. The amount of the variable dividend may increase or decrease (sometimes significantly) from dividend to dividend based on issuer-established thresholds and, on occasion, may not be paid at all if the issuer-established thresholds are not met. These variable dividends may also be in addition to regular dividends paid pursuant to the issuer’s policy or practice. For example, on May 19, 2022, Arch Resources, Inc. (ARCH) announced an 19 See OCC By-Laws, Art. VI § 11(a). 20 Id. 21 See Exchange Act Release No. 84565 (Nov. 9, 2018), 83 FR 57778, 57779 (Nov. 16, 2018) (SR– ODD–2018–01). VerDate Sep<11>2014 16:57 Mar 05, 2024 Jkt 262001 $8.11 quarterly dividend, which included a fixed component of $0.25 and a variable component of $7.86 per share. In making its adjustment determination, OCC considered an ARCH press release, issued on February 15, 2022, communicating that ARCH was launching a capital return program pursuant to which it planned to ‘‘return to stockholders approximately 50 percent of the prior quarter’s discretionary cash flow . . . via a variable quarterly cash dividend in conjunction with its existing fixed quarterly cash dividend.’’ 22 OCC determined that the quarterly variable dividend was an ‘‘ordinary dividend’’ as defined in Interpretation and Policy .01 to Article VI, Section 11A of OCC’s ByLaws, and therefore not subject to adjustment, because the dividend had been declared pursuant to a policy or practice of paying such dividend on a quarterly or other regular basis.23 As another example, on March 9, 2022, Zim Integrated Shipping Services Ltd. (ZIM) announced a cash dividend of $17.00 per share, representing 50% of ZIM’s 2021 net income, taking into account the quarterly dividends paid during the first three fiscal quarters of the year.24 Pursuant to the issuer’s stated policy, ZIM intended to ‘‘distribute a dividend to shareholders on a quarterly basis at a rate of approximately 20% of the net income derived during such fiscal quarter with respect to the first three fiscal quarters of the year’’ and that the ‘‘cumulative annual dividend amount to be distributed by [ZIM] (including the interim dividends paid during the first three fiscal quarters of the year) [would] total 30–50% of the annual net income.’’ 25 OCC determined that the $17 dividend was an ‘‘ordinary dividend’’ declared pursuant to a policy or practice of paying such dividend on a quarterly or other regular basis, and therefore not subject to adjustment.26 22 See Arch Resources Reports Fourth Quarter 2021 Results (Feb. 15, 2022), https:// investor.archrsc.com/2022-02-15-Arch-ResourcesReports-Fourth-Quarter-2021-Results. 23 See Info Memo #50473 (May 20, 2022). OCC does not issue Info Memos notifying market participants that OCC has determined not to adjust options (a ‘‘No-Adjustment’’ Info Memo) each time an issuer announces a dividend OCC determines to be ordinary and therefore not subject to adjustment. In general, OCC considers whether a NoAdjustment Info Memo may be warranted based on inquiries made by Clearing Members or others with respect to a particular corporate action. 24 See ZIM Reports Record Financial Results for the Fourth Quarter and Full Year 2021 (March 9, 2022), https://investors.zim.com/news/newsdetails/2022/ZIM-Reports-Record-FinancialResults-for-the-Fourth-Quarter-and-Full-Year-2021/ default.aspx. 25 Id. 26 See Info Memo #50158 (March 9, 2022). PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 16045 OCC proposes to add a Q&A to the interpretative guidance reflecting that if OCC determines such variable dividends are paid pursuant to an issuer’s policy or practice of paying such variable dividends at regular intervals, OCC generally considers them to be ordinary dividends and not adjustable, even if, on occasion, no variable dividend is paid or if the amount of the dividend increases or decreases based on the issuerestablished thresholds. OCC believes this guidance would align with the precedent described above and provide market participants with greater clarity about how OCC applies the adjustment policies outlined in the By-Laws to variable dividends. b. REITs OCC proposes to add further guidance about situations in which an issuer may pay a dividend outside of its normal schedule of dividend payments that the issuer describes as necessary to maintain its tax status as a particular type of organization, such as a REIT. The existing interpretative guidance answered several questions concerning dividends paid by REITs and similar companies. For example, the existing interpretative guidance addressed that while REITs may pay dividends at irregular intervals, these companies often have regular dividend policies, but will actually pay dividends only when certain conditions are met, or in response to market conditions. Similar to the variable dividend situation, in which, on occasion, no variable dividend is paid if issuer-established thresholds are not met, the prior interpretative guidance provided that such REIT distributions generally would be considered ordinary distributions when they occur pursuant to the policy of the company. However, OCC has observed at least one case in which an issuer has declared a dividend outside of its normal schedule of dividend payments to maintain its tax status as a particular type of organization, such as a REIT. Specifically, On July 22, 2022, Public Storage (‘‘PSA’’) announced a ‘‘special,’’ ‘‘one-time’’ dividend of $13.15 per common share.27 As explained in the issuer’s press release, PSA was distributing a projected tax gain in connection with its investment in 27 See Public Storage Announces $2.3 Billion Special Dividend Related to PS Business Parks Merger Consideration (July 22, 2022), https:// investors.publicstorage.com/news-events/pressreleases/news-details/2022/Public-StorageAnnounces-2.3-Billion-Special-Dividend-Related-toPS-Business-Parks-Merger-Consideration/ default.aspx. E:\FR\FM\06MRN1.SGM 06MRN1 16046 Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 another company that had been acquired ‘‘in order to meet the distribution requirements as a [REIT].’’ 28 Nevertheless, OCC determined that the dividend was nonordinary under its By-Laws and issued an Info Memo concerning an adjustment to options on PSA.29 As OCC would clarify in the further guidance, such a dividend would most likely be considered non-ordinary and warrant an adjustment if OCC determines that the dividend is not being made pursuant to the issuer’s established dividend policies and practices based on the company’s departure from its regular dividend schedule and any characterization the company may make about the pay-out as ‘‘special’’ or ‘‘one time.’’ In other words, an issuer’s characterization of a dividend as necessary to maintain its tax status as a particular type of organization is not determinative of whether a dividend is ‘‘ordinary’’ under OCC’s By-Laws. Rather, the question is whether the dividend is paid pursuant to an issuer’s policy of paying such a dividend at regular intervals to maintain its tax status. If such an issuer announces a special dividend outside of its regular dividend policies and practices, such dividend will most likely be considered non-ordinary and warrant an adjustment even if the issuer is paying the dividend to maintain its tax status. OCC proposes to add a Q&A to the interpretative guidance to reflect OCC’s practices in this situation. (2) Statutory Basis OCC believes the proposed rule changes are consistent with Section 17A of the Exchange Act and the rules and regulations thereunder. Section 17A(b)(3)(F) of the Exchange Act 30 requires, among other things, that the rules of a clearing agency be designed to protect investors and the public interest. OCC believes that by allowing it to amend and re-issue the interpretative guidance, the proposed changes would protect investors and the public interest by providing market participants with up-to-date information about OCC’s current process for making adjustment determinations. In addition, OCC believes the additional interpretative guidance would provide investors and the general public further clarity about the application of OCC’s adjustment policies and procedures to scenarios not specifically addressed in the existing guidance. Providing this information will help investors make more informed decisions in connection with their participation in the listed options market. Accordingly, OCC believes the proposed changes are consistent with Section 17A(b)(3)(F) of the Exchange Act.31 In addition, Exchange Act Rule 17Ad– 22(e)(23) requires OCC to maintain written policies and procedures reasonably designed to, among other things, publicly disclose all relevant rules and material procedures and provide sufficient information to enable participants to identify and evaluate the risks they incur by participating in OCC.32 The proposed changes would allow OCC to update interpretative guidance concerning its adjustment policies and procedures previously filed as a rule with the Commission, thereby facilitating the re-issuance of guidance about material procedures that remain relevant. OCC believes that by updating the guidance to reflect current precedent, the proposed changes will help participants in the listed options market to better understand the risks related to contract adjustments in the scenarios addressed, consistent with the requirements of Rule 17Ad–22(e)(23).33 to the proposed rule change, and none have been received. (B) Clearing Agency’s Statement on Burden on Competition 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–2024–003 on the subject line. Section 17A(b)(3)(I) of the Exchange Act requires that the rules of a clearing agency not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act.34 The proposed changes would amend interpretative guidance applicable to the adjustment of all listed options issued for a particular underlying security. These proposed changes would not impact the rights or obligations of Clearing Members or other participants in a way that would benefit or disadvantage any participant versus another participant. To the contrary, this proposed change would provide all market participants with information relevant to understanding the risks of participation. Accordingly, OCC does not believe that the proposed changes have any impact, or impose any burden, on competition. (C) Clearing Agency’s Statement on Comment on the Proposed Rule Change Received From Members, Participants or Others Written comments were not and are not intended to be solicited with respect 32 17 29 See 33 17 Info Memo #50775 (July 25, 2022). 30 15 U.S.C. 78q–1(b)(3)(F). VerDate Sep<11>2014 16:57 Mar 05, 2024 Jkt 262001 CFR 240.17Ad–22(e)(23)(i), (ii). CFR 240.17Ad–22(e)(23). 34 15 U.S.C. 78q–1(b)(3)(I). PO 00000 Frm 00078 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: 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–OCC–2024–003. 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 35 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f). 37 Notwithstanding its immediate effectiveness, implementation of this rule change will be delayed until this change is deemed certified under CFTC Regulation 40.6. 36 17 31 Id. 28 Id. 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) of the Act 35 and paragraph (f) of Rule 19b–4 36 thereunder. 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. The proposal shall not take effect until all regulatory actions required with respect to the proposal are completed.37 Fmt 4703 Sfmt 4703 E:\FR\FM\06MRN1.SGM 06MRN1 Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Notices 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 a.m. and 3 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/CompanyInformation/Documents-and-Archives/ By-Laws-and-Rules. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–OCC–2024–003 and should be submitted on or before March 27, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.38 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–04698 Filed 3–5–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99647; File No. SR–ISE– 2024–07] Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Expand Its Cabinet Proximity Option Program ddrumheller on DSK120RN23PROD with NOTICES1 February 29, 2024. 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 February 26, 2024, Nasdaq ISE, LLC (‘‘ISE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II 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. 38 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 16:57 Mar 05, 2024 Jkt 262001 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to expand the Exchange’s Cabinet Proximity Option program. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Currently, the Exchange offers a Cabinet Proximity Option program where, for a monthly fee, customers can obtain an option for future use on available, unused cabinet space in proximity to their existing equipment. Cabinets reserved under the Cabinet Proximity Option program are unused cabinets that customers reserve for future use and can be converted to a powered cabinet at the customer’s request. Under the program, customers can reserve up to maximum of 20 cabinets that the Exchange endeavors to provide as close as reasonably possible to the customer’s existing cabinet space, taking into consideration power availability within segments of the datacenter and the overall efficiency of use of datacenter resources as determined by the Exchange. Should reserved datacenter space be needed for use, the reserving customer will have three business days to formally contract with the Exchange for full payment for the reserved cabinet space in contention or it will be reassigned. In making determinations to require exercise or relinquishment of reserved space as among numerous customers, the Exchange will take into consideration several factors, including: proximity between available reserved cabinet space and the existing space of a customer seeking additional space for actual cabinet usage; a customer’s ratio of cabinets in use to those reserved; the length of time that a particular reservation(s) has been in place; and any PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 16047 other factor that the Exchange deems relevant to ensure overall efficiency in use of the datacenter space.3 Currently, the Exchange offers reservations for low, medium, medium/ high, or high density cabinets under the Cabinet Proximity Option program.4 The purpose of the proposed rule change is to offer the Exchange’s Cabinet Proximity Option program for cabinets with power densities greater than 10 kW, in addition to those reservations currently offered under the program.5 Although the Exchange has offered the Cabinet Proximity Option program since 2017,6 the Exchange has yet to offer reservations under the Cabinet Proximity Option program for cabinets with power densities greater than 10 kW (despite offering cabinets with power densities greater than 10 kW). The Exchange now wishes to offer the Cabinet Proximity Option program for these higher power density cabinets. Similar to the Exchange’s Cabinet Proximity Option program, the New York Stock Exchange LLC (‘‘NYSE’’) offers ‘‘PNU cabinets,’’ which are reserved cabinets that are not active and can be converted to powered, dedicated cabinets when the user requests.7 NYSE’s PNU cabinets are not limited to 3 See Securities Exchange Act Release No. 34– 62397 (June 28, 2010), 75 FR 38860 (July 6, 2010) (SR–NASDAQ–2010–019). In 2017, the Exchange synchronized its options for connecting to the Exchange with that of its sister exchanges and adopted uniform colocation services, including the Cabinet Proximity Option program. See Securities Exchange Act Release No. 34–81903 (October 19, 2017), 82 FR 49450 (October 25, 2017) (SR–ISE– 2017–91). 4 See General 8, Section 1(d). Low density cabinets are cabinets with power densities less than or equal to 2.88 kilowatts (‘‘kW’’). Medium density cabinets are cabinets with power densities greater than 2.88 kW and less than or equal to 5 kW. Medium/High density cabinets are cabinets with power densities greater than 5 kW and less than or equal to 7 kW. High density cabinets are cabinets with power densities greater than 7 kW and less than 10 kW. See General 8, Section 1(a). 5 Currently, the Exchange offers Super High Density Cabinets with power densities greater than 10 kW and less than or equal to 17.3 kW. See General 8, Section 1(a). In addition, the Exchange intends to offer cabinets with new power densities in the future, including power densities greater than 17.3 kW. 6 See Securities Exchange Act Release No. 34– 81903 (October 19, 2017), 82 FR 49450 (October 25, 2017) (SR–ISE–2017–91). 7 Due to heightened demand for power and cabinets, NYSE established certain procedures related to PNU cabinet conversion and restrictions on new PNU cabinet offerings. NYSE adopted a policy that, if unallocated cabinet inventory is at or below 40 cabinets, new PNU cabinets are not offered. However, when the unallocated cabinet inventory is more than 40 cabinets, NYSE may continue to offer PNU cabinets. See Securities Exchange Act Release No. 34–90732 (December 18, 2020), 85 FR 84443 (December 28, 2020). See also Securities Exchange Act Release No. 34–91515 (April 8, 2021), 86 FR 19674 (April 14, 2021). E:\FR\FM\06MRN1.SGM 06MRN1

Agencies

[Federal Register Volume 89, Number 45 (Wednesday, March 6, 2024)]
[Notices]
[Pages 16043-16047]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-04698]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99641; File No. SR-OCC-2024-003]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Concerning the Option Clearing Corporation's Interpretative Guidance on 
Contract Adjustments for Cash Dividends and Distributions

February 29, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on February 20, 2024, The Options Clearing 
Corporation (``OCC'' or ``Corporation'') 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 
primarily by OCC. OCC filed the proposed rule change pursuant to 
Section 19(b)(3)(A)(i) \3\ of the Act and Rule 19b-4(f)(1) \4\ 
thereunder, such that the proposed rule change was immediately 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    This proposed rule change would re-issue interpretative guidance 
relating to the adjustment of stock options for cash dividends and 
distributions on underlying securities with certain amendments, 
including (1) to reflect previously approved changes in the process for 
making such adjustment determinations; and (2) to address OCC's general 
approach to certain additional scenarios. Amendments to the 
interpretative guidance, are included in Exhibit 5 of File No. SR-OCC-
2024-003. Material proposed to be added is marked by underlining, and 
material proposed to be deleted is marked with strikethrough text. 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\
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    \5\ OCC's By-Laws and Rules can be found on OCC's public 
website: https://www.theocc.com/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
---------------------------------------------------------------------------

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

    OCC is the issuer of and sole clearing agency for standardized 
equity options listed on national securities exchanges registered with 
the Commission. In accordance with OCC's By-Laws, adjustments may be 
made to some of the standardized terms of outstanding options upon the 
occurrence of certain events related to the underlying security, such 
as a stock dividend, stock distribution, stock split, reverse stock 
split, rights offering, distribution, reorganization, recapitalization, 
reclassification in respect of an underlying security, or a merger, 
consolidation, dissolution or liquidation of the issuer of the 
underlying security.\6\ The determination whether to adjust outstanding 
options in response to a particular event, and, if so, what the 
adjustment should be, is made by OCC, taking into consideration 
policies and interpretations established in OCC's By-Laws and any 
policies and interpretations having general application to specific 
types of events or specified kinds of cleared contracts established by 
a committee (the ``Securities Committee'') consisting of 
representatives of each of the U.S. options markets and a 
representative of OCC.\7\
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    \6\ Adjustments for listed options are discussed at length in 
the Characteristics and Risks of Standardized Options (``Options 
Disclosure Document'' or ``ODD''), which broker-dealers are required 
to provide to a customer prior to accepting an order to purchase or 
sell a listed option. See 17 CFR 240.9b-1. The Options Disclosure 
Document is also available on OCC's website: https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document.
    \7\ See OCC By-Laws, Art. VI Sec.  11.
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    OCC previously filed with the Commission and issued interpretative 
guidance concerning the application of OCC's adjustment policies and 
procedures and other adjustment rules

[[Page 16044]]

for cash dividends.\8\ In the interest of promoting clarity and 
transparency for market participants, OCC is proposing to re-issue that 
interpretative guidance subject to proposed amendments that would (1) 
update the interpretative guidance's discussion of how adjustment 
determinations are made to reflect subsequent changes to the 
determination process since the interpretative guidance was last 
issued, and (2) provide additional guidance on certain underlying 
events.\9\ OCC does not propose to change its policies or practices 
with respect to such contract adjustments. OCC merely proposes to 
publish guidance reflecting its current policies and practices. 
Accordingly, OCC does not believe that this proposed change would have 
any impact on market participants other than to provide them with 
additional information.
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    \8\ See, e.g., Exchange Act Release No. 68531 (Dec. 21, 2012), 
77 FR 77157 (Dec. 31, 2012) (SR-OCC-2012-26).
    \9\ Consistent with prior practice, the interpretative guidance 
would be issued as an OCC Information Memorandum that would 
supersede the previously published Information Memoranda related to 
this interpretative guidance. The Information Memorandum would 
contain prefatory material intended to provide context for its 
issuance, remind readers of its relationship to the prior 
Information Memoranda and this proposed rule change, and summarize 
the relevant OCC By-Laws that are the subject of the interpretation. 
OCC does not believe this prefatory material is a rule within the 
meaning of Section 19(b) of the Exchange Act, 15 U.S.C. 78s(b), and 
the regulations thereunder because unlike the interpretative 
guidance promulgated through this proposed rule change, the 
prefatory material it is not a stated policy, practice or 
interpretation that establishes or changes any standard, limit, or 
guideline with respect to the rights, obligations or privileges of 
specified persons or the meaning, administration, or enforcement of 
an existing rule. See 17 CFR 240.19b-4(a)(6)(ii). Nor does the 
prefatory material constitute a material aspect of the operation of 
OCC. See 17 CFR 240.19b-4(a)(6)(i). OCC is providing a copy of the 
Information Memorandum it intends to issue upon implementation of 
the new guidance as Exhibit 3 to File No. SR-OCC-2024-003.
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(1) Purpose
Background
    OCC's By-Laws and Rules authorize OCC to make adjustments to listed 
options when certain events occur related to the underlying security, 
such as a stock dividend, stock distribution, stock split, reverse 
stock split, rights offering, distribution, reorganization, 
recapitalization, or reclassification with respect to the underlying 
security or the merger, consolidation, dissolution or liquidation of 
the issuer of the underlying security. The By-Laws provide policies and 
procedures for making such determinations, including that OCC 
determines whether to adjust a contract, taking into account such 
factors as fairness to holders and writers (or purchasers and sellers) 
of the affected contracts, the maintenance of a fair and orderly market 
in the affected contracts, consistency of interpretation and practice, 
efficiency of exercise settlement procedures, and the coordination with 
other clearing agencies of the clearance and settlement of transactions 
in the underlying interest.\10\ OCC applies these factors to a 
particular corporate action on a case-by-case basis, considering the 
circumstances known to it at the time the determination is made, 
subject to OCC's discretion to depart from policy and precedent when 
the Corporation determines that unusual circumstances make such a 
departure appropriate.\11\
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    \10\ See OCC By-Laws, Art. VI Sec.  11(a).
    \11\ Id.
---------------------------------------------------------------------------

    OCC's By-Laws also provide general rules applicable to specific 
types of corporate actions, including with respect to cash dividends or 
distributions made by the issuer of an underlying security. For 
example, the By-Laws establish a general rule that OCC does not adjust 
listed options to reflect ``ordinary cash dividends or distributions,'' 
which the By-Laws define to mean ``[c]ash dividends or distributions 
(regardless of size) by the issuer of the underlying security which 
[OCC] believes to have been declared pursuant to a policy or practice 
of paying such dividends or distributions on a quarterly or other 
regular basis or which [OCC] believes represents an acceleration or 
deferral of such payments.'' \12\ OCC established this general rule 
because when an issuer's policy or practice of paying such dividends is 
public, such ordinary dividends can be priced into options 
premiums.\13\ OCC's By-Laws also provide that for cash dividends not 
declared pursuant to an issuer's policy or practice of paying such 
distributions at regular intervals (i.e., ``special'' cash dividends 
and distributions), OCC will not adjust if the amount distributed is 
less than $0.125 per share (or $12.50 per contract for listed options 
with a unit of trading larger than 100 shares). OCC established this de 
minimis threshold in part to avoid the proliferation of outstanding 
option symbols and series.\14\
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    \12\ See OCC By-Laws, Art. VI Sec.  11A, Interpretation and 
Policy .01.
    \13\ See Exchange Act Release No. 55258 (Feb 8, 2007), 72 FR 
7701, 7703 (Feb. 16, 2007) (SR-OCC-2006-01).
    \14\ Symbols can proliferate when a dividend amount is added to 
the deliverable, yielding a non-standard option. Id., at note 14 and 
accompanying text. The resulting non-standard options may be 
illiquid and difficult to trade. Following an adjustment, exchanges 
typically introduce standard options with the same strikes.
---------------------------------------------------------------------------

    In connection with the adoption of the general rules against 
adjustments for cash dividends and distributions that are ordinary or 
below the de minimis threshold, OCC previously filed and published 
interpretative guidance promulgated by its Securities Committee to 
address questions about how those rules would be administered and 
applied.\15\ Presented in question and answer (``Q&A'') format, the 
interpretative guidance provided an overview of OCC's adjustment 
policies with respect to cash dividends and guidance on the application 
of those policies in a variety of scenarios. OCC has since updated and 
re-issued that interpretative guidance, the last time in 2012.\16\ 
Based on its continued relevance to market participants seeking to 
understand how OCC applies its adjustment policies, OCC proposes to re-
issue the interpretative guidance with certain updates discussed below.
---------------------------------------------------------------------------

    \15\ See Exchange Act Release No. 58059 (June 30, 2008), 73 FR 
39367 (July 9, 2008) (SR-OCC-2008-10).
    \16\ See Exchange Act Release No. 68531, supra note 6 [sic]. See 
also Exchange Act Release No. 66742 (Apr. 5, 2012), 77 FR 21819 
(Apr. 11, 2012) (SR-OCC-2012-05); Exchange Act Release No. 59442 
(Feb. 24, 2009), 74 FR 9654 (Mar. 5, 2009) (SR-OCC-2009-01).
---------------------------------------------------------------------------

(1) Conforming Changes To Reflect the Current Determination Process
    The proposed changes would remove references to the adjustment 
panel of the Securities Committee in the interpretative guidance's 
discussion of how options adjustments are made. Since the 
interpretative guidance was last issued in 2012, the Commission 
approved a proposed rule change that affected the determination 
process.\17\ Previously, an adjustment panel of the Securities 
Committee, consisting of representatives from the exchanges on which an 
option was listed and OCC's Chairman, would make determinations about 
whether that option should be adjusted in response to a corporate 
action. Currently, adjustment determinations are made by OCC rather 
than adjustment panels of the Securities Committee.\18\ However, the 
Securities Committee still maintains a role in promulgating statements 
of policy and interpretations having general

[[Page 16045]]

application to specified types of corporate actions or specified kinds 
of cleared contracts.\19\ In making adjustment determinations, OCC must 
consider such policy statements and interpretations in addition to the 
factors and general rules set forth in the By-Laws in light of the 
circumstances known to OCC at the time such determination is made, 
subject to OCC's discretion to depart from policy or precedent when the 
OCC determines that unusual circumstances make such a departure 
appropriate.\20\ OCC assumed sole responsibility for making adjustment 
determinations after corresponding updates to the Options Disclosure 
Document were approved by the Commission in 2018.\21\ Accordingly, when 
OCC re-issues the interpretative guidance on cash dividends and 
distributions, OCC proposes to replace references to determinations 
made by an adjustment panel of the Securities Committee with references 
to OCC and make other non-substantive, textual edits to the 
interpretative guidance consistent with that change. These changes are 
intended to reflect the current, Commission-approved process for 
adjustment determinations made by OCC.
---------------------------------------------------------------------------

    \17\ See Exchange Act Release No. 69977 (July 11, 2013), 78 FR 
42815 (July 17, 2013) (SR-OCC-2013-05).
    \18\ This change in governance arose from a request by the 
options exchanges promoted by a desire to consider ways to lessen 
investor confusion and enhance consistency in making option contract 
adjustments. See Exchange Act Release No. 69642 (May 28, 2013), 78 
FR 33138, 33139 (June 3, 2013) (SR-OCC-2013-05).
    \19\ See OCC By-Laws, Art. VI Sec.  11(a).
    \20\ Id.
    \21\ See Exchange Act Release No. 84565 (Nov. 9, 2018), 83 FR 
57778, 57779 (Nov. 16, 2018) (SR-ODD-2018-01).
---------------------------------------------------------------------------

(2) Additional Interpretative Guidance
    OCC also proposes to add additional Q&As that would provide 
guidance for several situations OCC has observed since the 
interpretative guidance was last issued, including (a) specific 
guidance with respect to variable dividends, and (b) additional 
guidance with respect to dividends issued by real estate investment 
trusts (``REITs'').
a. Variable Dividends
    OCC has seen an increase in the number of issuers that have 
established policies or practices of distributing ``variable 
dividends.'' Typically, such variable dividends are paid at regular 
intervals if issuer-defined thresholds for paying the dividends are 
met. The amount of the variable dividend may increase or decrease 
(sometimes significantly) from dividend to dividend based on issuer-
established thresholds and, on occasion, may not be paid at all if the 
issuer-established thresholds are not met. These variable dividends may 
also be in addition to regular dividends paid pursuant to the issuer's 
policy or practice.
    For example, on May 19, 2022, Arch Resources, Inc. (ARCH) announced 
an $8.11 quarterly dividend, which included a fixed component of $0.25 
and a variable component of $7.86 per share. In making its adjustment 
determination, OCC considered an ARCH press release, issued on February 
15, 2022, communicating that ARCH was launching a capital return 
program pursuant to which it planned to ``return to stockholders 
approximately 50 percent of the prior quarter's discretionary cash flow 
. . . via a variable quarterly cash dividend in conjunction with its 
existing fixed quarterly cash dividend.'' \22\ OCC determined that the 
quarterly variable dividend was an ``ordinary dividend'' as defined in 
Interpretation and Policy .01 to Article VI, Section 11A of OCC's By-
Laws, and therefore not subject to adjustment, because the dividend had 
been declared pursuant to a policy or practice of paying such dividend 
on a quarterly or other regular basis.\23\
---------------------------------------------------------------------------

    \22\ See Arch Resources Reports Fourth Quarter 2021 Results 
(Feb. 15, 2022), https://investor.archrsc.com/2022-02-15-Arch-Resources-Reports-Fourth-Quarter-2021-Results.
    \23\ See Info Memo #50473 (May 20, 2022). OCC does not issue 
Info Memos notifying market participants that OCC has determined not 
to adjust options (a ``No-Adjustment'' Info Memo) each time an 
issuer announces a dividend OCC determines to be ordinary and 
therefore not subject to adjustment. In general, OCC considers 
whether a No-Adjustment Info Memo may be warranted based on 
inquiries made by Clearing Members or others with respect to a 
particular corporate action.
---------------------------------------------------------------------------

    As another example, on March 9, 2022, Zim Integrated Shipping 
Services Ltd. (ZIM) announced a cash dividend of $17.00 per share, 
representing 50% of ZIM's 2021 net income, taking into account the 
quarterly dividends paid during the first three fiscal quarters of the 
year.\24\ Pursuant to the issuer's stated policy, ZIM intended to 
``distribute a dividend to shareholders on a quarterly basis at a rate 
of approximately 20% of the net income derived during such fiscal 
quarter with respect to the first three fiscal quarters of the year'' 
and that the ``cumulative annual dividend amount to be distributed by 
[ZIM] (including the interim dividends paid during the first three 
fiscal quarters of the year) [would] total 30-50% of the annual net 
income.'' \25\ OCC determined that the $17 dividend was an ``ordinary 
dividend'' declared pursuant to a policy or practice of paying such 
dividend on a quarterly or other regular basis, and therefore not 
subject to adjustment.\26\
---------------------------------------------------------------------------

    \24\ See ZIM Reports Record Financial Results for the Fourth 
Quarter and Full Year 2021 (March 9, 2022), https://investors.zim.com/news/news-details/2022/ZIM-Reports-Record-Financial-Results-for-the-Fourth-Quarter-and-Full-Year-2021/default.aspx.
    \25\ Id.
    \26\ See Info Memo #50158 (March 9, 2022).
---------------------------------------------------------------------------

    OCC proposes to add a Q&A to the interpretative guidance reflecting 
that if OCC determines such variable dividends are paid pursuant to an 
issuer's policy or practice of paying such variable dividends at 
regular intervals, OCC generally considers them to be ordinary 
dividends and not adjustable, even if, on occasion, no variable 
dividend is paid or if the amount of the dividend increases or 
decreases based on the issuer-established thresholds. OCC believes this 
guidance would align with the precedent described above and provide 
market participants with greater clarity about how OCC applies the 
adjustment policies outlined in the By-Laws to variable dividends.
b. REITs
    OCC proposes to add further guidance about situations in which an 
issuer may pay a dividend outside of its normal schedule of dividend 
payments that the issuer describes as necessary to maintain its tax 
status as a particular type of organization, such as a REIT. The 
existing interpretative guidance answered several questions concerning 
dividends paid by REITs and similar companies. For example, the 
existing interpretative guidance addressed that while REITs may pay 
dividends at irregular intervals, these companies often have regular 
dividend policies, but will actually pay dividends only when certain 
conditions are met, or in response to market conditions. Similar to the 
variable dividend situation, in which, on occasion, no variable 
dividend is paid if issuer-established thresholds are not met, the 
prior interpretative guidance provided that such REIT distributions 
generally would be considered ordinary distributions when they occur 
pursuant to the policy of the company.
    However, OCC has observed at least one case in which an issuer has 
declared a dividend outside of its normal schedule of dividend payments 
to maintain its tax status as a particular type of organization, such 
as a REIT. Specifically, On July 22, 2022, Public Storage (``PSA'') 
announced a ``special,'' ``one-time'' dividend of $13.15 per common 
share.\27\ As explained in the issuer's press release, PSA was 
distributing a projected tax gain in connection with its investment in

[[Page 16046]]

another company that had been acquired ``in order to meet the 
distribution requirements as a [REIT].'' \28\ Nevertheless, OCC 
determined that the dividend was non-ordinary under its By-Laws and 
issued an Info Memo concerning an adjustment to options on PSA.\29\
---------------------------------------------------------------------------

    \27\ See Public Storage Announces $2.3 Billion Special Dividend 
Related to PS Business Parks Merger Consideration (July 22, 2022), 
https://investors.publicstorage.com/news-events/press-releases/news-details/2022/Public-Storage-Announces-2.3-Billion-Special-Dividend-Related-to-PS-Business-Parks-Merger-Consideration/default.aspx.
    \28\ Id.
    \29\ See Info Memo #50775 (July 25, 2022).
---------------------------------------------------------------------------

    As OCC would clarify in the further guidance, such a dividend would 
most likely be considered non-ordinary and warrant an adjustment if OCC 
determines that the dividend is not being made pursuant to the issuer's 
established dividend policies and practices based on the company's 
departure from its regular dividend schedule and any characterization 
the company may make about the pay-out as ``special'' or ``one time.'' 
In other words, an issuer's characterization of a dividend as necessary 
to maintain its tax status as a particular type of organization is not 
determinative of whether a dividend is ``ordinary'' under OCC's By-
Laws. Rather, the question is whether the dividend is paid pursuant to 
an issuer's policy of paying such a dividend at regular intervals to 
maintain its tax status. If such an issuer announces a special dividend 
outside of its regular dividend policies and practices, such dividend 
will most likely be considered non-ordinary and warrant an adjustment 
even if the issuer is paying the dividend to maintain its tax status. 
OCC proposes to add a Q&A to the interpretative guidance to reflect 
OCC's practices in this situation.
(2) Statutory Basis
    OCC believes the proposed rule changes are consistent with Section 
17A of the Exchange Act and the rules and regulations thereunder. 
Section 17A(b)(3)(F) of the Exchange Act \30\ requires, among other 
things, that the rules of a clearing agency be designed to protect 
investors and the public interest. OCC believes that by allowing it to 
amend and re-issue the interpretative guidance, the proposed changes 
would protect investors and the public interest by providing market 
participants with up-to-date information about OCC's current process 
for making adjustment determinations. In addition, OCC believes the 
additional interpretative guidance would provide investors and the 
general public further clarity about the application of OCC's 
adjustment policies and procedures to scenarios not specifically 
addressed in the existing guidance. Providing this information will 
help investors make more informed decisions in connection with their 
participation in the listed options market. Accordingly, OCC believes 
the proposed changes are consistent with Section 17A(b)(3)(F) of the 
Exchange Act.\31\
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78q-1(b)(3)(F).
    \31\ Id.
---------------------------------------------------------------------------

    In addition, Exchange Act Rule 17Ad-22(e)(23) requires OCC to 
maintain written policies and procedures reasonably designed to, among 
other things, publicly disclose all relevant rules and material 
procedures and provide sufficient information to enable participants to 
identify and evaluate the risks they incur by participating in OCC.\32\ 
The proposed changes would allow OCC to update interpretative guidance 
concerning its adjustment policies and procedures previously filed as a 
rule with the Commission, thereby facilitating the re-issuance of 
guidance about material procedures that remain relevant. OCC believes 
that by updating the guidance to reflect current precedent, the 
proposed changes will help participants in the listed options market to 
better understand the risks related to contract adjustments in the 
scenarios addressed, consistent with the requirements of Rule 17Ad-
22(e)(23).\33\
---------------------------------------------------------------------------

    \32\ 17 CFR 240.17Ad-22(e)(23)(i), (ii).
    \33\ 17 CFR 240.17Ad-22(e)(23).
---------------------------------------------------------------------------

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

    Section 17A(b)(3)(I) of the Exchange Act requires that the rules of 
a clearing agency not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Exchange Act.\34\ The 
proposed changes would amend interpretative guidance applicable to the 
adjustment of all listed options issued for a particular underlying 
security. These proposed changes would not impact the rights or 
obligations of Clearing Members or other participants in a way that 
would benefit or disadvantage any participant versus another 
participant. To the contrary, this proposed change would provide all 
market participants with information relevant to understanding the 
risks of participation. Accordingly, OCC does not believe that the 
proposed changes have any impact, or impose any burden, on competition.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

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

    Written comments 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) of the Act \35\ and paragraph (f) of Rule 19b-4 \36\ 
thereunder. 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.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78s(b)(3)(A).
    \36\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.\37\
---------------------------------------------------------------------------

    \37\ Notwithstanding its immediate effectiveness, implementation 
of this rule change will be delayed until this change is deemed 
certified under CFTC Regulation 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-2024-003 on the subject line.

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-OCC-2024-003. 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

[[Page 16047]]

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 
a.m. and 3 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/Company-Information/Documents-and-Archives/By-Laws-and-Rules.
    Do not include personal identifiable information in submissions; 
you should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection.
    All submissions should refer to file number SR-OCC-2024-003 and 
should be submitted on or before March 27, 2024.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-04698 Filed 3-5-24; 8:45 am]
BILLING CODE 8011-01-P
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