83 FR 57778 - 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
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 222 (November 16, 2018)
Federal Register Volume 83, Issue 222 (November 16, 2018)
| Page Range | 57778-57780 | |
| FR Document | 2018-24988 |
[Federal Register Volume 83, Number 222 (Friday, November 16, 2018)] [Notices] [Pages 57778-57780] From the Federal Register Online [www.thefederalregister.org] [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. --------------------------------------------------------------------------- \12\ See Securities Exchange Act Release No. 69977 (July 11, 2013), 78 FR 42815 (July 17, 2013) (SR-OCC-2013-05). --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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). --------------------------------------------------------------------------- [[Page 57780]] 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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
![57778 Federal Register / Vol. 83, No. 222 / Friday, November 16, 2018 / Notices
not available to other market Commission believes that waiver of the public in accordance with the
participants. 30-day operative delay is consistent provisions of 5 U.S.C. 552, will be
The Exchange’s proposal to expand with the protection of investors and the available for website viewing and
the Market Order Spread Protection to public interest. Accordingly, the printing in the Commission’s Public
permit the Exchange to establish Commission hereby waives the Reference Room, 100 F Street NE,
different thresholds for one or more operative delay and designates the Washington, DC 20549 on official
series or classes of options, the same as proposed rule change operative upon business days between the hours of
Phlx, would apply uniformly to all filing.19 10:00 a.m. and 3:00 p.m. Copies of the
market participants. At any time within 60 days of the filing also will be available for
filing of the proposed rule change, the inspection and copying at the principal
C. Self-Regulatory Organization’s
Commission summarily may office of the Exchange. All comments
Statement on Comments on the
temporarily suspend such rule change if received will be posted without change.
Proposed Rule Change Received From
it appears to the Commission that such Persons submitting comments are
Members, Participants, or Others
action is necessary or appropriate in the cautioned that we do not redact or edit
No written comments were either public interest, for the protection of personal identifying information from
solicited or received. investors, or otherwise in furtherance of comment submissions. You should
III. Date of Effectiveness of the the purposes of the Act. If the submit only information that you wish
Proposed Rule Change and Timing for Commission takes such action, the to make available publicly. All
Commission Action Commission shall institute proceedings submissions should refer to File
to determine whether the proposed rule Number SR–NASDAQ–2018–085, and
Because the foregoing proposed rule change should be approved or
change does not: (i) Significantly affect should be submitted on or before
disapproved. December 7, 2018.
the protection of investors or the public
interest; (ii) impose any significant IV. Solicitation of Comments For the Commission, by the Division of
burden on competition; and (iii) become Interested persons are invited to Trading and Markets, pursuant to delegated
operative for 30 days from the date on authority.20
submit written data, views, and
which it was filed, or such shorter time arguments concerning the foregoing, Eduardo A. Aleman,
as the Commission may designate, it has including whether the proposed rule Assistant Secretary.
become effective pursuant to Section change is consistent with the Act. [FR Doc. 2018–24981 Filed 11–15–18; 8:45 am]
19(b)(3)(A) of the Act 15 and Rule 19b– Comments may be submitted by any of BILLING CODE 8011–01–P
4(f)(6) thereunder.16 the following methods:
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the Electronic Comments SECURITIES AND EXCHANGE
Act 17 normally does not become • Use the Commission’s internet COMMISSION
operative for 30 days after the date of its comment form (http://www.sec.gov/
[Release No. 34–84565; File No. SR–ODD–
filing. However, Rule 19b–4(f)(6)(iii) 18 rules/sro.shtml); or 2018–01]
permits the Commission to designate a • Send an email to rule-comments@
shorter time if such action is consistent sec.gov. Please include File Number SR– Self-Regulatory Organizations; The
with the protection of investors and the NASDAQ–2018–085 on the subject line. Options Clearing Corporation; Order
public interest. The Exchange has Granting Approval of Accelerated
Paper Comments
requested that the Commission waive Delivery of Supplement to the Options
the 30-day operative delay so that the • Send paper comments in triplicate
Disclosure Document Reflecting the
proposed rule change may become to Secretary, Securities and Exchange
Inclusion of Disclosure Regarding
operative upon filing. The Exchange Commission, 100 F Street NE,
Foreign Currency Index Options and
believes that waiver of the operative Washington, DC 20549–1090.
Implied Volatility Index Options,
delay would allow the Exchange to All submissions should refer to File Certain Contract Adjustment
update its rules without delay to reflect Number SR–NASDAQ–2018–085. This Disclosures, and T+2 Settlement
the proposed amendments with respect file number should be included on the
to QUO and OTTO at the same time as subject line if email is used. To help the November 9, 2018.
it proposes to implement the new OTTO Commission process and review your On October 24, 2018, the Options
functionality, and bring greater comments more efficiently, please use Clearing Corporation (‘‘OCC’’) submitted
transparency to the Exchange’s risk only one method. The Commission will to the Securities and Exchange
protections. Additionally, the post all comments on the Commission’s Commission (‘‘Commission’’), pursuant
Commission notes that the changes internet website (http://www.sec.gov/ to Rule 9b–1 under the Securities
relating to the OTTO protocol and risk rules/sro.shtml). Copies of the Exchange Act of 1934 (‘‘Act’’),1 five
protections are based on the operation submission, all subsequent preliminary copies of a supplement to
of similar functionality on Nasdaq ISE amendments, all written statements amend the options disclosure document
and Phlx, respectively. Therefore, the with respect to the proposed rule (‘‘ODD’’) to include disclosure regarding
change that are filed with the foreign currency index options and
15 15 U.S.C. 78s(b)(3)(A). Commission, and all written implied volatility index options, certain
16 17 CFR 240.19b–4(f)(6). In addition, Rule 19b- communications relating to the contract adjustment disclosures, and
4(f)(6)(iii) requires a self-regulatory organization to proposed rule change between the T+2 settlement (‘‘October 2018
give the Commission written notice of its intent to
amozie on DSK3GDR082PROD with NOTICES
file the proposed rule change, along with a brief Commission and any person, other than Supplement’’).2 On October 25, 2018,
description and text of the proposed rule change, those that may be withheld from the
at least five business days prior to the date of filing 20 17 CFR 200.30–3(a)(12).
of the proposed rule change, or such shorter time 19 For purposes only of waiving the 30-day 1 17 CFR 240.9b–1.
as designated by the Commission. The Exchange operative delay, the Commission also has 2 See email from Marcie Pomper, Corporate
has satisfied this requirement. considered the proposed rule’s impact on Assistant, OCC, to Sharon Lawson and David
17 17 CFR 240.19b–4(f)(6).
efficiency, competition, and capital formation. See Michehl, Division of Trading and Markets
18 17 CFR 240.19b–4(f)(6)(iii). 15 U.S.C. 78c(f). (‘‘Division’’), Commission, dated October 24, 2018.
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![57780 Federal Register / Vol. 83, No. 222 / Friday, November 16, 2018 / Notices
Rule 9b–1(b)(2)(i) under the Act 14 SECURITIES AND EXCHANGE summaries, set forth in Sections A, B,
provides that an options market must COMMISSION and C below, of the most significant
file five copies of an amendment or aspects of such statements.
[Release No. 34–84561; File No. SR–CFE–
supplement to the ODD with the 2018–003] A. Self-Regulatory Organization’s
Commission at least 30 days prior to the Statement of the Purpose of, and
date definitive copies are furnished to Self-Regulatory Organizations; Cboe Statutory Basis for, the Proposed Rule
customers, unless the Commission Futures Exchange, LLC; Notice of a Change
determines otherwise, having due Filing of a Proposed Rule Change
regard to the adequacy of the Regarding Block Trade and Exchange 1. Purpose
information disclosed and the public of Contract for Related Position The proposed rule change revises the
interest and protection of investors.15 In Reporting Provisions criteria for who can act as an
addition, five copies of the definitive Authorized Reporter for Exchange of
November 9, 2018.
ODD, as amended or supplemented, Contract for Related Position (‘‘ECRP’’)
Pursuant to Section 19(b)(7) of the transactions and Block Trades and to
must be filed with the Commission not Securities Exchange Act of 1934
later than the date the amendment or allow for the assessment of summary
(‘‘Act’’),1 notice is hereby given that on fines for violations of two comparable
supplement, or the amended ODD, is November 2, 2018 Cboe Futures ECRP and Block Trade reporting
furnished to customers. The Exchange, LLC (‘‘CFE’’ or ‘‘Exchange’’) provisions.
Commission has reviewed the October filed with the Securities and Exchange The first two changes provided for in
2018 Supplement, and the amendments Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change relate to who
to the ODD contained therein, and finds the proposed rule change described in can act as an Authorized Reporter for
that, having due regard to the adequacy Items I, II, and III below, which Items ECRP transactions and Block Trades.
of the information disclosed and the have been prepared by CFE. The CFE Rule 414 (Exchange of Contract for
public interest and protection of Commission is publishing this notice to Related Position) governs ECRP
investors, the supplement may be solicit comments on the proposed rule transactions and CFE Rule 415 (Block
furnished to customers as of the date of change from interested persons. CFE Trades) governs Block Trades. Rule
this order. also has filed this proposed rule change 414(i) and Rule 415(f) provide that each
with the Commodity Futures Trading CFE Trading Privilege Holder (‘‘TPH’’)
It is therefore ordered, pursuant to Commission (‘‘CFTC’’). CFE filed a
Rule 9b–1 under the Act,16 that executing an ECRP transaction or Block
written certification with the CFTC Trade, as applicable, must have at least
definitive copies of the October 2018 under Section 5c(c) of the Commodity one designated individual that is either
Supplement to the ODD (SR–ODD– Exchange Act (‘‘CEA’’) 2 on November 2, a TPH or a Related Party 3 of a TPH and
2018–01), reflecting the inclusion of 2018. that is pre-authorized by a Clearing
disclosure regarding foreign currency Member to report ECRP transactions and
index options and implied volatility I. Self-Regulatory Organization’s
Description of the Proposed Rule Block Trades on behalf of the TPH. An
index options, certain contract individual designated for this purpose is
adjustment disclosures, and T+2 Change
referred to as an Authorized Reporter.
settlement, may be furnished to The Exchange proposes to amend CFE is proposing to amend Rule 414(i)
customers as of the date of this order. reporting provisions under CFE Rules and Rule 415(f) to remove the
414, 415, and 714 relating to Block requirement that an Authorized
For the Commission, by the Division of
Trades and Exchange of Contract for Reporter must be a TPH or a Related
Trading and Markets, pursuant to delegated
Related Position (‘‘ECRP’’) transactions. Party of a TPH. CFE is also proposing
authority.17
The scope of this filing is limited solely to amend Rule 414(i) and Rule 415(f) to
Eduardo A. Aleman, to the application of the proposed rule make clear that, to the extent required
Assistant Secretary. amendments to security futures that by applicable law, an Authorized
[FR Doc. 2018–24988 Filed 11–15–18; 8:45 am] may be traded on CFE. Although no Reporter must be registered or otherwise
BILLING CODE 8011–01–P security futures are currently listed for permitted by the appropriate regulatory
trading on CFE, CFE may list security body or bodies to act in the capacity of
futures for trading in the future. The text an Authorized Reporter and to conduct
of the proposed rule change is attached related activities.
as Exhibit 4 to the filing but is not CFE understands from TPHs that
attached to the publication of this there are service providers that perform
notice. reporting functions that are similar to
II. Self-Regulatory Organization’s ECRP transaction and Block Trade
Statement of the Purpose of, and reporting and that there are TPHs that
Statutory Basis for, the Proposed Rule would like to utilize individuals from
are made in the future. Any future changes to the Change these service providers (who are not
rules of the options markets concerning foreign either a TPH or a Related Party of a
In its filing with the Commission, CFE
currency index options and implied volatility index TPH) to act as an Authorized Reporter
included statements concerning the
options would need to be submitted to the for ECRP transactions and Block Trades
Commission under Section 19(b) of the Act. 15
purpose of and basis for the proposed
U.S.C. 78s(b). rule change and discussed any
amozie on DSK3GDR082PROD with NOTICES
3 Chapter 1 of CFE’s Rulebook provides that: The
14 17 CFR 240.9b–1(b)(2)(i). comments it received on the proposed term ‘‘Related Party’’ means, with respect to any
15 This provision permits the Commission to rule change. The text of these statements TPH: Any partner, director, officer, branch manager,
shorten or lengthen the period of time which must may be examined at the places specified employee or agent of such TPH (or any Person
occupying a similar status or performing similar
elapse before definitive copies may be furnished to in Item IV below. CFE has prepared functions); any Person directly or indirectly
customers.
Controlling, Controlled by, or under common
16 17 CFR 240.9b–1. 1 15 U.S.C. 78s(b)(7). Control with, such TPH; or any Authorized Trader
17 17 CFR 200.30–3(a)(39). 27 U.S.C. 7a–2(c). of such TPH.
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Document Created: 2018-11-16 07:22:53
Document Modified: 2018-11-16 07:22:53
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 83 FR 57778 |
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