[Federal Register Volume 78, Number 120 (Friday, June 21, 2013)]
[Notices]
[Pages 37645-37646]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-14793]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69772; File No. SR-OCC-2013-04]
Self-Regulatory Organizations; The Options Clearing Corporation;
Order Approving Proposed Rule Change To Change the Expiration Date For
Most Option Contracts to the Third Friday of the Expiration Month
Instead of the Saturday Following the Third Friday
June 17, 2013.
I. Introduction
On April 17, 2013 The Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-OCC-2013-04 pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder.\2\ The proposed rule change was published for comment in
the Federal Register on May 6, 2013.\3\ The Commission received one
comment in response to the proposed rule change, in which the commenter
expressed support for the change.\4\ This order approves the proposed
rule change.\5\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 34-69480 (April 30,
2013), 78 FR 26413 (May 6, 2013).
\4\ See Comment from John V. Bruzzese dated May 3, 2013 (stating
that the change would be ``beneficial for [the] option expiration
process'') (http://sec.gov/comments/sr-occ-2013-04/occ201304-1.htm).
\5\ OCC also filed the proposed rule change as an advance notice
under Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (``Dodd-Frank Act'') entitled the
Payment, Clearing, and Settlement Supervision Act of 2010
(``Clearing Supervision Act''). 12 U.S.C. 5465(e)(1); SR-OCC-2013-
802.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
Proposal
The primary purpose of the proposed rule change is to allow OCC to
change the expiration date for most option contracts to the third
Friday of the expiration month instead of the Saturday following the
third Friday. Most option contracts (``Standard Expiration Contracts'')
currently expire at the ``expiration time'' (11:59 p.m. Eastern Time)
on the Saturday following the third Friday of the specified expiration
month (``Expiration Date'').\6\
---------------------------------------------------------------------------
\6\ See the definition of ``expiration time'' in Article I of
OCC's By-Laws. According to OCC, the expiration time would continue
to be 11:59 p.m. Eastern Time on the Expiration date.
---------------------------------------------------------------------------
The proposed change applies only to series of Standard Expiration
Contracts opened for trading after the effective date of this proposed
rule change and having Expiration Dates later than February 1, 2015.
Option contracts having non-standard expiration dates (``Non-standard
Expiration Contracts'') are unaffected by this proposed rule change.\7\
---------------------------------------------------------------------------
\7\ Examples of options with Non-standard Expiration Contracts
include flex options and quarterly, monthly, and weekly options
where the expiration exercise processing for such options presently
occurs on a weekday.
---------------------------------------------------------------------------
In order to provide a smooth transition to the Friday expiration,
OCC intends to, beginning June 21, 2013, move the expiration exercise
procedures to Friday for all Standard Expiration Contracts even though
the contracts would continue to expire on Saturday.\8\ After February
1, 2015, virtually all Standard Expiration Contracts will expire on
Friday. According to OCC, the only Standard Expiration Contracts that
will expire on a Saturday after February 1, 2015 are certain options
that were listed prior to the effectiveness of this rule change,\9\ and
a limited number of options that may be listed prior to necessary
systems changes of the options exchanges, which are expected to be
completed in August 2013.\10\ After the transition period and the
expiration of all existing Saturday-expiring
[[Page 37646]]
options, expiration processing should be a single operational process
and should run on Friday night for all Standard Expiration Contracts.
---------------------------------------------------------------------------
\8\ For contracts having a Saturday expiration date, exercise
requests received after Friday expiration processing is complete but
before the Saturday contract expiration time will continue to be
processed so long as they are submitted in accordance with OCC's
procedures governing such requests.
\9\ According to OCC, certain option contracts have already been
listed on exchanges with expiration dates as distant as December
2016. Such options have Saturday expiration dates and OCC cannot
change the terms of existing option contracts. In addition, clearing
members have expressed a clear preference not to have open interest
in any particular month with different expiration dates. Therefore,
OCC will designate certain expiration dates as ``grandfathered,''
and any option contract that is listed, or may be listed in the
future, that expires on a grandfathered date will have a Saturday
expiration date even if such expiration date is after February 1,
2015. After OCC designates an expiration date as grandfathered, the
exchanges have agreed not to permit the listing of, and OCC will not
accept for clearance, any newly listed standard expiration option
contract with a Friday expiration in the applicable month.
\10\ The exchanges have agreed that once these systems changes
are made they will not open for trading any new series of option
contracts with Saturday expiration dates falling after February 1,
2015.
---------------------------------------------------------------------------
In connection with moving from Saturday to Friday night processing
and expiration, OCC reviewed other aspects of its business to confirm
that there would be no unintended consequences, and concluded that
there would be none. For example, OCC believes the proposed changes do
not affect OCC's liquidity forecasting procedures, nor do they impact
OCC's liquidity needs, since OCC's liquidity forecasts and liquidity
needs are driven by settlement obligations, which occur on the same day
(T+3) irrespective of the move to Friday night processing and
expiration dates.
According to OCC, industry groups, clearing members, and options
exchanges have been active participants in planning for the transition
to the Friday expiration. OCC has obtained assurances from all options
industry participants that they will be ready to move to Friday night
expiration processing by June 2013.
Rule Changes
In order to implement the change to Friday expiration processing
and eventual transition to Friday expiration for all Standard
Expiration Contracts, OCC is amending the definition of ``expiration
date'' in Article I and certain other articles of the By-Laws. As
amended, the applicability of the definition is no longer limited to
stock options, and the definition of ``expiration date'' in certain
articles of the By-Laws therefore is deleted in reliance on the Article
I definition. OCC is also amending Rule 805, and all rules
supplementing or replacing Rule 805, to allow for Friday expiration
processing during the transition to Friday expiration. OCC is also
amending section 18 of Article VI of the By-Laws to align procedures
for delays in producing Expiration Exercise Reports and submission of
exercise instructions with the amended expiration exercise procedures
in Rule 805. OCC is amending Rule 801 to modify the prohibition against
exercising an American-style option contract on the business day prior
to its expiration date, because this prohibition is necessary only for
options expiring on a Saturday and to remove clearing members' ability
to revoke or modify exercise notices in order to accommodate the
compressed Friday expiration processing expiration schedule.
Finally, OCC is amending Rules 801 and 805 to allow certain
determinations to be made by high-level officers of OCC, rather than
the Board of Directors, in order to provide OCC with greater
operational flexibility in processing exercise requests received after
Friday expiration processing is complete but before the Saturday
contract expiration time, and to replace various references to the
expiration date of options with reference to the procedures of Rule
805.
Under the proposed change, OCC is preserving the ability of the
options exchanges to designate (or, in the case of flexibly structured
options, permit clearing members to designate) non-standard expiration
dates for options, or classes or series of options, so long as the
designated expiration date is not a date OCC has specified as
ineligible to be an expiration date.
III. Discussion
Section 19(b)(2)(C) of the Act \11\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to such organization. Section 17A(b)(3)(F) of the Act \12\
requires, among other things, that the rules of a clearing agency are
designed to promote the prompt and accurate clearance and settlement of
securities transactions and foster cooperation and coordination with
persons engaged in the clearance and settlement of securities
transactions.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78s(b)(2)(C).
\12\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
By changing the expiration date for most Standard Expiration
Contracts to the third Friday of the expiration month and moving the
expiration exercise procedures to Friday for all Standard Expiration
Contracts, the rule change should help to promote the prompt and
accurate clearance and settlement of securities transactions as well as
foster cooperation and coordination with persons engaged in the
clearance and settlement of securities transactions. As mentioned
above, the rule change will allow OCC to streamline the expiration
process among Standard Expiration, Non-standard Expiration Contracts,
quarterly options, and weekly options and also align expiration
processing schedules for United States markets with expiration
processing schedules for European markets.
IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act \13\ and the
rules and regulations thereunder.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\14\ that the proposed rule change (File No. SR-OCC-2013-04) be and
hereby is approved.\15\ However, the proposed changes that are the
subject of the proposed rule change shall not take effect until all
regulatory actions required with respect to the proposed changes are
completed.\16\
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78s(b)(2).
\15\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
\16\ OCC also filed the proposed rule change as an advance
notice under Section 806(e)(1) of the Clearing Supervision Act. 12
U.S.C. 5465(e)(1); SR-OCC-2013-802. Proposed changes filed under the
Clearing Supervision Act may be implemented pursuant to Section
806(e)(1)(G) of the Clearing Supervision Act if the Commission does
not object to the proposed change within 60 days of the later of (i)
the date that the proposed change was filed with the Commission or
(ii) the date that any additional information requested by the
Commission is received. 12 U.S.C. 5465(e)(1)(G).
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\17\
---------------------------------------------------------------------------
\17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary .
[FR Doc. 2013-14793 Filed 6-20-13; 8:45 am]
BILLING CODE 8011-01-P