Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change by The Options Clearing Corporation Concerning Adjustments to Cleared Contracts

#  Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change by The Options Clearing Corporation Concerning Adjustments to Cleared Contracts

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 September 25, 2025, 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. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

[^1] 15 U.S.C. 78s(b)(1).

[^2] 17 CFR 240.19b-4.

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

This proposed rule change concerns proposed changes to OCC's By-Laws and Rules pertaining to cleared contract adjustments (the “Proposal”). Specifically, the proposed changes would (i) relocate OCC's existing provisions in its By-Laws related to adjustments to proposed Chapter XXVIII of the Rules, with certain non-substantive clarifying changes thereto; (ii) consolidate provisions regarding OCC's adjustment authority and practices for actively traded products with similar methods of adjustments, [^3] such as adjustments to stock futures with provisions for adjustments to stock options, to eliminate duplicative provisions; (iii) set forth certain new provisions to provide greater detail describing OCC's current practices in making adjustment determinations ( *e.g.,* by specifying additional circumstances when OCC will generally not make an adjustment or specifying additional factors guiding adjustment determinations); and (iv) update references to current adjustment By-Laws sections relating to the governance of changes to the By-Laws and Rules.

[^3] By-Law adjustment provisions for products that do not currently trade will not be consolidated in the proposed Rules at this time. Article XIV, Sections 3A and 3B (Adjustments for Binary Options), Article XV, Section 4 (Adjustments for Foreign Currency Options), Article XVI, Section 3 (Adjustments for Yield-Based Treasury Options), Article XXIV, Section 4 (Adjustments for BOUNDS), and Article XXVI (Adjustments for Packaged Spread Options) will remain in the By-Laws but would be updated as part of the Proposal to reflect references to other adjustment provisions that are proposed for relocation to the Rules.

OCC filed Exhibits 5A and 5B of filing SR-OCC-2025-017, respectively, as the proposed amendments to OCC's By-Laws and Rules and Exhibit 3A of filing SR-OCC-2025-017 as a comparison of the proposed changes to OCC's By-Laws and Rules. Highlighted text in Exhibit 3A indicates places where OCC proposes to consolidate currently separate provisions for options contracts and stock futures; the highlighted text shows stock futures-related provisions that OCC proposes to add to an option contract-related provision to allow for such single provision to govern both options contracts and stock futures. All capitalized terms not defined herein have the same meaning as set forth in the OCC By-Laws and Rules. [^4]

[^4] 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**

**1. Purpose**

OCC is proposing changes to its By-Laws and Rules related to adjustment of options contracts. The proposed changes would (i) relocate the existing By-Law provisions concerning adjustments to proposed Chapter XXVIII of the Rules, with certain non-substantive clarifying changes thereto; (ii) consolidate provisions regarding adjustments between certain products with similar provisions to eliminate duplicative provisions; (iii) set forth certain new adjustment provisions to provide greater detail describing OCC's current practices in making adjustment determinations ( *e.g.,* by specifying additional circumstances in which OCC will generally not make an adjustment); and (iv) update references to current  adjustment By-Laws sections contained in other adjustment provisions of the By-Laws for products not actively trading with the newly proposed Rules.

**Background**

Certain corporate actions that affect an underlying security—such as declaration of dividends or distributions, stock splits, rights offerings, reorganizations, or the merger or liquidation of an issuer—may require an adjustment to the terms of the overlying derivatives, like the options that are cleared and settled by OCC. The future occurrence of corporate actions is not always foreseeable at the time parties enter a derivatives trade, and therefore the occurrence of such a corporate action is not priced into the economics of the trade. Because derivative contract positions of trading parties may exist for weeks, months or years after the position was established, corporate actions may occur during the life of the contract that affect the economic position of the parties. In general, an adjustment to a contract in such cases is intended to maintain the economic value of the existing positions by mirroring what occurs to the underlying security to the extent possible and within the parameters established in the OCC By-Laws.

An example in the stock options context is useful to help illustrate these points. Assume that the issuer of stock XYZ announces a 2-for-1 stock split. The stock split will result in twice the number of shares of XYZ at half the pre-split price. That is, if there were 1,000 shares of XYZ before the 2-for-1 split (with each share having a value of $58), immediately post the split there will be 2,000 shares of XYZ with each share having a value of $29. Now consider these consequences in the context of a related options contract covering XYZ. Assume that prior to the announcement (when XYZ was still trading at $58 per share), Investor 1 wrote a call option on XYZ with an exercise price of $60. Assume further that Investor 2 bought that same series of call option having an exercise price of $60 and paid the related premium. When the 2-for-1 split causes the number of XYZ shares to double and the price of each XYZ share to fall to $29, Investor 2 will no longer be in the same economic position in the option contract unless some additional and corresponding action is taken to adjust its terms. This is because Investor 2 as the option holder will only profit from exercising the call option if the price of XYZ shares is above $60. Now that the XYZ shares are valued at $29 due to the 2-for-1 split, the chances of that occurring are substantially diminished ( *i.e.,* the market price of the XYZ shares would have to increase by more than $31 prior to the expiration of the option), even though at the time Investor 2 bought the option the market price of XYZ would have only needed to increase by more than $2 dollars prior to the expiration for Investor 2 to be able to realize a profit from exercising the option. [^5]

[^5] Example excludes premium cost, taxes, commissions, or other fees that may impact the profitability of an option position.

The manner in which OCC would generally handle the option contract adjustment in this example is described in Characteristics and Risks of Standardized Options, which is commonly referred to as the Options Disclosure Document (“ODD”). [^6] It states in relevant part:

[^6] Unless a broker-dealer furnishes or has furnished to its customer a copy of the definitive ODD, it is prohibited under Exchange Act Rule 9b-1 from accepting an order from the customer to purchase or sell an option contract in a class covered by the ODD and from approving the customer's account for trading of such options. *See* 17 CFR 240.9b-1.

When a stock distribution, stock split, or stock dividend results in the issuance of one or more whole shares of stock for each outstanding share—such as a 2-for-1 or 3-for-1 split—as a general rule the number of shares will not be adjusted. Instead, the number of outstanding options will be proportionately increased, and the exercise price will be proportionately decreased.

*Example:* Before a 2-for-1 stock split, an investor holds an option on 100 shares of XYZ stock with an exercise price of $60. After adjustment for the split, he will hold two XYZ options, each on 100 shares and each with an exercise price or $30. [^7]

[^7]*See* ODD at 19 (June 2024), *available at https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document.*

OCC currently has broad authority to effect contract adjustments on a case-by-case basis. The factors typically used to inform whether OCC will make an adjustment to a contract are: (a) the fairness to holders and writers (or purchasers and sellers) of the affected contracts; (b) the maintenance of a fair and orderly market in the affected contracts; (c) consistency of interpretation and practice; (d) the efficiency of exercise settlement procedures; and (e) the coordination with other clearing agencies of the clearance and settlement of transactions in the underlying interest. OCC also maintains a Securities Committee, consisting of one designated representative of each Securities Exchange [^8] and the Chief Executive Officer of OCC, that is authorized to adopt certain statements of policy or interpretations having general application to specified types of events or OCC cleared contracts. [^9] The purpose of the Securities Committee is to help guide adjustment policy for new or unusual situations as needed, consistent with OCC's By-Laws and Rules.

[^8] Consistent with OCC's rules, a Securities Exchange means a national securities exchange or national securities association that has qualified for participation in OCC as an “Equity Exchange” or “Non-Equity Exchange” pursuant to either Article VIIA or VIIB of OCC's By-Laws. *See* OCC By-Laws, Article I, Section 1.

[^9] OCC notes that it filed as proposed rule changes stated policies, practices, or interpretations as required under Section 19 of the Exchange Act and Rule 19b-4 thereunder. 17 CFR 240.19b-4(a)(6).

OCC will generally not make an adjustment to an options or futures contract with respect to ordinary dividends or distributions that are routinely made by the issuer. This is because ordinary dividends or distributions may be factored into the economic expectations of the parties to an options or futures contract even though the event has not yet been formally announced or declared. OCC notes that when OCC makes a determination to adjust an options or futures contract, all market participants holding options or futures contracts are uniformly subject to OCC's adjustment determination.

**Proposed Consolidation of Adjustments Provisions Into OCC Rule Chapter XXVIII**

Currently, provisions related to adjustments are found in multiple sections of OCC's By-Laws. The provisions related to options contract adjustments are set forth in Article VI, Section 11 and 11A of the By-Laws. The provisions related to futures contracts and futures options adjustments are set forth in Article XII, Sections 3, 4, and 4A of the By-Laws. Similarly, provisions relating to adjustments for cash settled foreign currency options and index options and certain other cash-settled options ( *e.g.,* flexibly structured options) are currently set forth in Article XXII, Section 3 and Article XVII, Section 3 respectively. OCC proposes to consolidate all of these provisions related to adjustments into a single, new Chapter XXVIII of OCC's Rules to promote clarity, consistency, and understanding of OCC's Rules. [^10] OCC believes that this will improve the readability and understanding of OCC's provisions regarding adjustments by  having a single chapter of OCC's Rules that governs adjustments for all instruments. OCC believes this will facilitate greater understanding of OCC's regulatory framework in this area, which OCC believes is in the public interest and would further the protection of investors. OCC also proposes to make certain clarifying edits to certain of these provisions. Where there are substantively similar provisions for different instruments— *e.g.,* where OCC's adjustment determinations are the same for options contracts and futures contracts—OCC's proposes to consolidate such provisions for the same reason of promoting clarity, consistency, and understanding of OCC's Rules and handling of adjustments. Similarly, OCC also proposes to add headers to most of the paragraphs or subparagraphs in italicized text to briefly preview and describe in a few words the purpose of the provision in order to improve the readability of the Rules. [^11]

[^10] OCC also believes that these provisions are better organized as Rules rather than continuing to be maintained in OCC's By-Laws. This is because typical corporate by-laws address governance and administrative matters and do not address derivatives contract adjustments. Relocating the adjustment provisions into the Rules would therefore incrementally help OCC reshape its By-Laws in a manner that better reflects typical corporate bylaws.

[^11] These headers can be seen in italicized text in Exhibit 3A of filing SR-OCC-2025-017. In addition, OCC proposes to replace internal cross-references throughout the proposed Rules to ensure that they correspond to the correct Rule provision(s).

Set forth below is a brief description of each of the five newly proposed Rules in Chapter XXVIII (Rules 2801 through 2805), followed by a table that sets forth a list of current OCC By-Law provisions related to adjustments and where they have been redesignated under proposed Chapter XXVIII of OCC's Rules. [^12] The third column in each table describes notable changes or consolidations from the current By-Law provision to the new Chapter XXVIII Rule provision. Newly proposed provisions are described separately in the next section of this proposed rule change.

[^12] OCC proposes to adjust all internal cross-references within adjustment provisions in its current By-Laws to correspond to the appropriate Chapter XXVIII Rule provision.

**Proposed Rule 2801—Adjustment by the Corporation**

OCC proposes to set forth in Rule 2801 its general authority to make adjustments, the factors that OCC considers in making adjustments and to specify that adjustment determinations are within the sole discretion of OCC. The table below describes where current By-Law provisions are being relocated to proposed Rule 2801 and notable changes to such provisions.

| Current By-Law provisions | Proposed Chapter XXVIII Rule | Notable changes |
| --- | --- | --- |
| Section 11(a) and (b) of Article VI (Adjustment Policies and Procedures) | Rule 2801—Adjustment by the Corporation | OCC proposes to change the section title from “Adjustment Policies and Procedures” to “Adjustment by the Corporation,” add clarifying headers (
                            
                             by creating a new section (b) as “Factors” considered by OCC and redesignating current Section 11(b) as Rule 2801(c)). OCC also proposes to move the second to last sentence of Section 11(a) of Article VI describing the authority of OCC's Securities Committee to adopt certain statements of policy or interpretation to proposed Rule 2802(a) described below.
                            
                             A modified version of the last sentence of Section 11(a) of Article VI (describing that OCC will apply the factors set forth in Rule 2801(b) in making an adjustment determination based on its knowledge at the time of such determination) is in Rule 2801(b). |

**Proposed Rule 2802—Statements of Adjustment Policies and Interpretations**

OCC proposes to set forth in Rule 2802 certain adjustment policies and interpretations, including a description of OCC's Securities Committee, including its composition, governance, and authority to adopt statements of policy or interpretation having general application to specified types of events. The table below describes where current By-Law provisions are being relocated to proposed Rule 2802 and notable changes to such provisions.

| Current By-Law provisions | Proposed Chapter XXVIII Rule | Notable changes |
| --- | --- | --- |
| Sections 11(a), (b) and (c) of Article VI | Rule 2802(a)—Statements of Policies and Interpretations Regarding Adjustments of Option Contracts | OCC proposes to describe in Rule 2802(a)(1) the authority of the Securities Committee to adopt statements of policy or interpretation and to specify the types of options for which it may make such statements of policy or interpretation.
                            
                             OCC would also add non-substantive language such as headers to promote clarity, such as by adding the header in proposed Rule 2802(a)(2) (taken from Section 11(c) of Article VI of the By-Laws) “Securities Committee Composition and Governance.” |
| Section 3(a) of Article XII | Rule 2802(b)—Statements of Adjustments of Futures and Futures Options | OCC proposes to relocate the third sentence of Article XII, Section 3(a) to Rule 2802 so that statements on policies for both stock options contracts and stock futures are located within the same rule. |

**Proposed Rule 2803—Adjustments for Stock Option Contracts and Stock Futures**

OCC proposes to set forth in Rule 2803 provisions related to adjustments for stock option contracts and stock futures. OCC proposes to combine substantially similar provisions related to adjustments for stock option contracts and stock futures into a single Rule. The table below describes where current By-Law provisions are being relocated to proposed Rule 2803 and notable changes to such provisions.

| Current By-Law provisions | Proposed Chapter XXVIII Rule | Notable changes |
| --- | --- | --- |
| Section 11A of Article VI of the By-Laws; | Rule 2803 (a) and (b)—Adjustments for Stock Options and Stock Futures | OCC proposes to consolidate substantively similar provisions currently located in Section 11A of Article VI and Section 3(b) of Article XII of the By-Laws into proposed Rule 2803 to describe the circumstances when OCC may make an adjustment (
                            
                            , where a dividend is issued). |
| Section 11A(c) of Article VI (clause (x)); | Rule 2803(c) and (c)(1)—Events not normally resulting in a contract adjustment | OCC proposes to consolidate substantively similar provisions describing events that will generally not result in an adjustment currently located in Section 11A(c) of Article VI (clause (x)) and |
| Interpretation and Policy .01 to Section 11A of Article VI (third sentence of first paragraph 
                            
                             and first sentence of second paragraph); 
                            
                             and Interpretation and Policy .01(a) to Section 3 of Article XII (regarding stock futures) (last sentence of first paragraph 
                            
                             and first sentence of the second paragraph) | Rule 2803(c)(1)(i)—Factors considered in making adjustment determinations | OCC proposes to set forth in Rule 2803(c)(1)(i) the factors that OCC may consider in determining whether to make an adjustment by consolidating certain provisions currently set forth in Policy .01 to Section 11A of Article VI and Policy .01(a) to Section 3 of Article XII of the By-Laws. In so doing, OCC proposes combining substantively identical provisions in its By-Laws for options and stock futures to consolidate OCC's rules and improve readability. OCC proposes to set forth these factors as lettered items (items (A) through (D)) rather than as a single sentence to improve readability. OCC does not propose substantive changes to these provisions. |
| Interpretation and Policy.01 to Section 11A of Article VI (first sentence); 
                            
                             Interpretation and Policy .01(a) to Section 3 of Article XII (regarding stock futures) (first sentence) | Rule 2803(c)(1) (ii)(A) (describing cash dividends and distributions deemed to be an “ordinary distribution”) | OCC proposes to describe the meaning of an “ordinary distribution” in the context of cash dividends or distributions in Rule 2803(c)(1)(ii)(A) by combining substantively similar provisions currently set forth in the first sentence of Interpretation and Policy .01 to Section 11A of Article VI and to Interpretation and Policy .01(a) to Section 3 of Article XII to the By-Laws.
                            
                             OCC does not propose substantive changes to meaning of what is considered an “ordinary distribution.” |
| Interpretation and Policy .09 to Section 11A of Article VI; 
                            
                             and Interpretation and Policy .10 to Section 3 of Article XII (regarding stock futures) | Rule 2803(c)(1)(ii)(B) (specifying that interest payments on index-linked securities will generally be considered an “ordinary distribution”) | OCC proposes to specify that an “ordinary distribution” generally includes interest payments on index-linked securities in Rule 2803(c)(1)(ii)(B) by combining substantively similar provisions currently set forth in the first sentence of Interpretation and Policy .09 to Section 11A of Article VI and to Interpretation and Policy .10 to Section 3 of Article XII to the By-Laws.
                            
                             OCC does not propose substantive changes to this provision—i.e., OCC does not propose any different treatment of interest payments on index-linked securities as part of the Proposal. |
| Interpretation and Policy .01 to Section 11A of Article VI (second sentence); 
                            
                             and Interpretation and Policy .01(b) to Section 3 of Article XII (regarding stock futures) | Rule 2803(c)(1)(iii) (A) (describing when stock dividends and distributions are deemed to be an “ordinary distribution”) | OCC proposes to describe the meaning of an “ordinary distribution” in the context of stock dividends or distributions in Rule 2803(c)(1)(iii)(A) and (B) by combining substantively similar provisions currently set forth in the first sentence of Interpretation and Policy .01 to Section 11A of Article VI and to Interpretation and Policy .01(b) to Section 3 of Article XII to the By-Laws.
                            
                             OCC does not propose substantive changes to meaning of what stock dividends or distributions are generally considered an “ordinary distribution.” |
| Interpretation and Policy .01 to Section 11A of Article VI (last sentence of second paragraph); 
                            
                             Interpretation and Policy .01(a) to Section 3 of Article XII (regarding stock futures) (last sentence of second paragraph) | Rule 2803(c)(1) | OCC proposes to describe certain types of dividends or distributions not deemed to be an “ordinary distribution” in Rule 2803(c)(1)(iv)(A) (specifically when OCC does not expect such distribution to be provided regularly) by combining substantively similar provisions currently set forth in Interpretation and Policy .01 to Section 11A of Article VI and to Interpretation and Policy .01(a) to Section 3 of Article XII to the By-Laws.
                            
                             OCC does not proposes substantive changes to these provisions. |
| Interpretation and Policy .08 to Section 11A of Article VI (clause (i)); 
                            
                             and Interpretation and Policy .08 to Section 3 of Article XII (regarding stock futures) (clause (i)) | Rule 2803(c)(1)(iv)(B) (describing how distributions of short and long term capital gains are ordinarily not considered an ordinary distribution) | OCC proposes to describe certain types of dividends or distributions not deemed to be an “ordinary distribution” in Rule 2803(c)(1)(iv)(B) (specifically distributions of short-term and long-term capital gains) by combining substantively similar provisions currently set forth in Interpretation and Policy .08 to Section 11A of Article VI and to Interpretation and Policy .08(a) to Section 3 of Article XII to the By-Laws.
                            
                             OCC does not propose substantive changes to these provisions. |
| Interpretation and Policy .08 to Section 11A of Article VI (clause (ii)); 
                            
                             and Interpretation and Policy .08 to Section 3 of Article XII (regarding stock futures) (clause (ii)) | Rule 2803(c)(1)(iv)(C) (describing when certain distributions resulting from certain events on an index will not be considered an “ordinary distribution”) | OCC proposes to describe when certain types of dividends or distributions on index fund shares are not deemed to be an “ordinary distribution” in Rule 2803(c)(1)(iv)(C) by combining substantively similar provisions currently set forth in Interpretation and Policy .08 to Section 11A of Article VI and to Interpretation and Policy .08(a) to Section 3 of Article XII to the By-Laws.
                            
                             OCC does not propose substantive changes to these provisions. |
| Interpretation and Policy .01 to Section 11A of Article VI (last sentence of the first paragraph) | Rule 2803(c)(1)(v) (describing how OCC determines whether a dividend is issued on a quarterly or other regular basis) | OCC proposes to replace text from Interpretation and Policy .01 to Section 11A of Article VI in Rule 2803(c)(1)(v) to provide that where a question arises as to whether a dividend or distribution was declared pursuant to a policy of paying such dividend/distribution quarterly or on another regular basis, such question shall be determined by OCC. OCC does not propose substantive changes to this provision other than to change the phrase “shall be referred to the Corporation for determination” to “shall be determined by the Corporation.” This change is to make the Rule more accurate because no entity refers these to OCC—rather, OCC identifies and makes these determinations. |
| Interpretation and Policy .02 to Section 11A of Article VI; and Interpretation and Policy .02 to Section 3 of Article XII (regarding stock futures) (fifth and sixth sentences) | Rule 2803(c)(3)(i) (describing poison pill rights among events not ordinarily resulting in adjustments) | OCC proposes to consolidate substantively similar provisions currently located in the Interpretation and Policy .02 to Section 11A of Article VI and fifth and sixth sentences Interpretation and Policy .02 to Section 3 of Article XII, which specify (among other things) that OCC will not ordinarily make an adjustment to reflect the issuance of so-called “poison pill” rights that are not immediately exercisable, trade as a unit or automatically with the underlying security, and may be redeemed by the issuer. OCC does not propose substantive changes to these provisions. |
| Interpretation and Policy .03 to Section 11A of Article VI; and Interpretation and Policy .03 to Section 3 of Article XII (regarding stock futures) | Rule 2803(c)(3)(ii) (describing a tender offer or exchange offer as among events not ordinarily resulting in adjustments) | OCC proposes to consolidate substantively similar provisions currently located in Interpretation and Policy .03 to Section 11A of Article VI and Interpretation and Policy .03 to Section 3 of Article XII of the By-Laws, which specify (among other things) that OCC will not ordinarily make an adjustment to reflect a tender offer or exchange offer irrespective of whether the offer is made by the issuer or a third party and whether the offer is for cash, securities or other property.
                            
                             OCC does not propose substantive changes to the these provisions. |
| Interpretation and Policy .04 to Section 11A; and Interpretation and Policy .04 to Section 3 of Article XII (regarding stock futures) | Rule 2803(c)(3)(iii) (describing changes in capital structure as among events not ordinarily resulting in adjustments) | OCC proposes to consolidate substantively similar provisions currently located in the Interpretation and Policy .04 to Section 11A of Article VI and Interpretation and Policy .04 to Section 3 of Article XII of the By-Laws, which specify (among other things) that OCC will not ordinarily adjust a contract to reflect changes in the capital structure of an issuer where all of the underlying securities outstanding in the hands of the public (other than dissenters' shares) are not changed into another security, cash or other property. OCC does not propose substantive changes to these provisions. |
| Section 11A(d) of Article VI; Section 3(d) of Article XII (regarding stock futures) | Rule 2803(d) (describing events ordinarily resulting in contract adjustments) | OCC proposes to relocate current Section 11A(d)(i)—(iii) of Article VI of the By-Laws as Rule 2803(d)(1)(i)—(iii) to describe when OCC ordinarily will make an adjustment for distributions of combinations of shares. OCC proposes to add a header as Rule 2803(d)(1) to clarify that these adjustments are circumstances where the distribution of additional shares of the underly security by the issuer of the security are not deemed to be “ordinary dividends and distributions” pursuant to proposed Rule 2803(c).
                            
                             OCC also proposes to consolidate Section 3(d) of Article XII of the By-Laws, which sets forth substantively similar provisions with respect to stock futures into Rule 2803(d)(1), with added language to clarify that the provision governs both options contract adjustments and stock futures.
                            
                             OCC does not propose substantive changes to the these provisions. |
| Interpretation and Policy .05 to Section 11A of Article VI; and Interpretation and Policy .05 to Section 3 of Article XII (regarding stock futures) | Rule 2803(d)(2) (describing adjustments in the case of cash mergers and similar events) | OCC proposes to relocate Interpretation and Policy .05 to Section 11A of Article VI of the By-Laws, which generally governs adjustments to options contracts where an underlying security is converted into a right to receive a fixed amount of cash. OCC also proposes to consolidate Interpretation and Policy .05 to Section 3 of Article XII of the By-Laws, which sets forth substantively similar provisions with respect to stock futures into Rule 2803(d)(2).
                            
                             OCC does not propose substantive changes to these provisions. |
| Interpretation and Policy .06 to Section 11A of Article VI; and Interpretation and Policy .06 to Section 3 of Article XII (regarding stock futures) | Rule 2803(d)(3) (describing adjustments in the case of a reorganization, stock merger or a cash and stock merger or a similar event) | OCC proposes to replace Interpretation and Policy .06 to Section 11A of Article VI and Interpretation and Policy .06 to Section 3 of Article XII of the By-Laws, which currently governs adjustments in the case of corporate reorganizations or similar events that result in an automatic share for share exchange of shares will ordinarily be adjusted by replacing such underlying security with a like number of units of the shares of the resulting company.
                            
                             OCC proposes to consolidate these substantively similar option contract and stock future provisions into new Rule 2803(d)(3) to provide that “[w]hen an underlying security is converted into a right to receive another security or a combination of another security and cash, such as in a merger, reorganization, or similar event, the Corporation shall adjust outstanding option contracts and stock futures by replacing such underlying security with the like number of units of the shares of the resulting company or cash in an amount per share or unit equal to the conversion or redemption price.” OCC does not believe that the revised language represents a substantive change, as both the existing and revised provisions provide that option and stock future holders will receive a like number of units of shares of the resulting company. |
| Interpretation and Policy .07 to Section 11A of Article VI; and Interpretation and Policy .07 to Section 3 of Article XII (regarding stock futures) | Rule 2803(d)(4) (describing subsequent adjustments for conversion to a debt security or a preferred stock) | OCC proposes to consolidate Interpretation and Policy .07 to Section 11A of Article VI and Interpretation and Policy .07 to Section 3 of Article XII of the By-Laws, which govern additional adjustments for options contracts and stock futures respectively when an underlying security is converted in whole or in part into a debt security or a preferred stock, into proposed Rule 2803(d)(4). OCC proposes non-substantive edits to these provisions to combine the options and stock futures provisions 
                            
                             and to improve readability. |
| Interpretation and Policy .02 to Section 3 of Article XII (regarding stock futures) (second through fourth sentences) | Rule 2803(d)(5) (describing rights distributions with respect to stock futures) | OCC proposes to relocate the second through third sentences of Interpretation and Policy .02 to Section 3 of Article XII without substantive edit. |
| Section 11A(e) of Article VI of the By-Laws; and Section 3(e) of Article XII (regarding stock futures) | Rule 2803(e) (describing adjustments for other distributions not addressed elsewhere in OCC's Rules) | OCC proposes to consolidate and relocate current Section 11A(e) of Article VI and Section 3(e) of Article XII of the By-Laws as proposed Rule 2803(e) to govern other types of distributions not addressed elsewhere in OCC's Rules. OCC proposes to add language to make clear that the consolidated Rule applies to both options and stock futures.
                            
                             OCC also proposes to relocate text from these By-Laws provisions which provides that OCC has the authority to the determine the value of distributed property to proposed Rule 2803(j). OCC does not otherwise propose substantive changes to these By-Law provisions. |
| Section 11A(f) of Article VI; and Section 3(f) of Article XII (regarding stock futures) | Rule 2803(f) (describing corporate actions not otherwise provided for in OCC's adjustment Rules) | OCC proposes to consolidate and relocate current Section 11A(f) of Article VI and Section 3(f) of Article XII of the By-Laws as proposed Rule 2803(e) to govern other corporate actions not otherwise provided for in OCC's Rules. OCC proposes to add language to make clear that the consolidated Rule applies to both options and stock futures.
                            
                             OCC does not otherwise propose substantive changes to these By-Law provisions. |
| Section 11A(g) of Article VI; and Section 3(g) of Article XII (regarding stock futures) | Rule 2803(g) (providing that adjustments pursuant to proposed Rule 2803 will become effective on the “ex-date”) | OCC proposes to consolidate and relocate current Section 11A(g) of Article VI and Section 3(g) of Article XII of the By-Laws as proposed Rule 2803(g) to provide that adjustments under proposed Rule 2803 will become effective on the “ex-date” established by the primary market for the underlying security. OCC proposes to add language to make clear that the consolidated Rule applies to both options and stock futures.
                            
                             OCC does not otherwise propose substantive changes to these By-Law provisions. |
| Section 11A(h) of Article VI; and Section 3(h) of Article XII (regarding stock futures) | Rule 2803(h) (describing OCC's rounding process for adjustments) | OCC proposes to consolidate and relocate current Section 11A(h) of Article VI and Section 3(h) of Article XII of the By-Laws as proposed Rule 2803(h) to describe how OCC performs rounding of exercise prices or settlement prices. OCC proposes to add language to make clear that the consolidated Rule applies to both options and stock futures.
                            
                             OCC does not otherwise propose substantive changes to these By-Law provisions. |
| Section 11A(e) of Article VI (last sentence); and Section 3(e) of Article XII (last sentence) (regarding stock futures) | Rule 2803(j) (regarding OCC's authority to determine the cash value of any distributed property) | OCC proposes to relocate the last sentence from Section 11A(e) of Article VI of the By-Laws (which is also the last sentence of and Section 3(e) of Article XII of the By-Laws) as the first sentence of Proposed Rule 2803(j). OCC proposes to add an additional new provision to proposed Rule 2803(j), which is described below in this proposed rule change.
                            
                             OCC does not otherwise propose substantive changes to this By-Law provision. |
| Section 11A(i) of Article VI; and Section 3(i) of Article XII (regarding stock futures) | Rule 2803(n) (describing OCC's authority to make exceptions to the general rules governing adjustments) | OCC proposes to consolidate and relocate current Section 11A(i) of Article VI and Section 3(i) of Article XII of the By-Laws as proposed Rule 2803(n) to set forth OCC's authority to make exceptions to its general rules governing adjustments. OCC proposes non-substantive changes to the phrasing of these By-Law provisions and changes to internal cross-references therein. |
| Section 3(j) of Article XII (regarding stock futures) | Rule 2803(o) (describing adjustment of stock futures using amounts reported by an exchange) | OCC proposes to relocate Section 3(j) of Article XII of the By-Laws as Rule 2803(o) without substantive change. The only change would be to update internal cross-references and add the phrase “of this Rule” following the reference to paragraph (c) in the first sentence. |

**Proposed Rule 2804—Adjustments of Index Options and Futures and Certain Other Cash-Settled Options and Futures**

OCC proposes to set forth in Rule 2804 provisions related to adjustments for index options and futures and certain other cash-settled options and futures. Proposed Rule 2804 would primarily consolidate into a single Rule provisions currently located in Section 3 of Article XVII and Section 4 of Article XII of the By-Laws. The table below describes where current By-Law provisions are being relocated to proposed Rule 2804 and notable changes to such provisions.

| Current By-Law | Proposed Chapter XXVIII Rule | Notable changes |
| --- | --- | --- |
| Section 3(b) of Article XVII (regarding index options and certain other cash-settled options); and Section 4A(b) of Article XII (regarding stock futures) | Rule 2804(a) (governing adjustment of index options and futures and certain other cash-settled options and futures) | OCC proposes to consolidate and relocate Section 3(b) of Article XVII and Section 4 of Article XII as proposed Rule 2804(a). Proposed Rule 2804(a) would generally provide that, in the case of cash-settled options or cash-settled futures that do not require physical delivery of the underlying interest (except as expressly provided otherwise in the Rules 
                            
                             relating to a particular cleared contract) determinations as to whether and how to adjust the terms of such instruments to reflect events affecting the underlying interest shall be made by OCC in accordance with Rule 2801. The notable changes from the baseline By-Law provisions include: (i) specifying that proposed Rule 2804(a) applies to cash settled options or cash-settled futures that “do not require physical delivery of the underlying interest”; 
                            
                             (ii) delete text describing the factors OCC would consider in making an adjustment decision and replace it with a cross-reference to Rule 2801.
                            
                             OCC also proposes to specify in proposed Rule 2804(a) that flexibly structure options on fund shares that are cash settled are governed by proposed Rule 2803.
                            
                             Finally, OCC proposes to replace Section 4A(b) of Article XII of the By-Laws, which currently sets forth OCC's authority to adjust the underlying interest, unit of trading, settlement price or any other terms of a futures contract that does not require physical delivery of the underlying interest. |
| Section 3(c) of Article XVII (regarding index options and certain other cash-settled options); and Section 4(a) of Article XII (regarding stock futures) | Rule 2804(b) (governing the addition, deletion or change to index components) | OCC proposes to consolidate and relocate Section 3(c) of Article XVII and Section 4(a) of Article XII of the By-Laws as proposed Rule 2804(b) to set forth OCC's adjustment practices with respect to changes to index components that underlie an index option contract, index futures contract, or variance futures that have an index as their reference variable.
                            
                             OCC does not propose substantive changes to these provisions. |
| Section 3(d) of Article XVII (regarding index options and certain other cash-settled options); and Section 4(b) and 4(d) of Article XII (regarding stock futures) | Rule 2804(c) (governing a change to an index multiplier, calculation method, or underlying index or reference index) | OCC proposes to consolidate and relocate Section 3(d) of Article XVII and Section 4(b) and (d) of Article XII of the By-Laws as proposed Rule 2804(c) to set forth the conditions precedent and adjustment practices where there is a change to an index multiplier, calculation method, or the underlying index or reference index with respect to an index option contract, index futures contract or variance futures contract.
                            
                             OCC proposes to reorganize these provisions into two parts to improve readability and describe in proposed Rule 2804(c)(1) the conditions when OCC will make adjustments to these contracts and in proposed Rule 2804(c)(2) the adjustment practices.
                            
                             OCC proposes to restate the condition for an adjustment to an underlying variance currently set forth in Section 4(d) of Article XII of the By-Laws as proposed Rule 2804(c)(1)(iii).
                            
                             OCC does not propose substantive changes to these provisions. |
| Section 3(e) of Article XVII (regarding index options and certain other cash-settled options); and Section 4(c) of Article XII (regarding stock futures) | Rule 2804(d) (governing the substitution of a successor index) | OCC proposes to consolidate and relocate Section 3(e) of Article XVII and Section 4(c) of Article XII of the By-Laws as proposed Rule 2804(d) to address when OCC may substitute another index (a “successor index” may be substituted for an index option, index futures contract, or variance futures contract.
                            
                             OCC proposes to reorganize these provisions into three separate subparts (as proposed Rule 2804(d)(1)-(3). OCC proposes to relocate the final sentence of Section 4(c) of Article XII of the By-Laws, which is specific only to index futures contracts and variance futures as proposed Rule 2804(d)(3).
                            
                             OCC does not propose substantive changes to these provisions. |
| Section 3(f) of Article XVII (regarding index options and certain other cash-settled options) | Rule 2804(e) (addressing where the underlying relative performance index is below zero) | OCC proposes to relocate Section 3(f) of Article XVII of the By-Laws in proposed Rule 2804(e) to address events where the value of an underlying relative performance index falls below zero. OCC does not propose substantive changes to these provisions. |
| Section 3(g) of Article XVII (regarding index options and certain other cash-settled options) | Rule 2804(f) (addressing the elimination of an individual reference security) | OCC proposes to relocate Section 3(g) of Article XVII of the By-Laws in proposed Rule 2804(f) to address events where any individual reference security in an underlying relative performance index is eliminated.
                            
                             OCC does not propose substantive changes to these provisions. |
| Section 4(e) of Article XII (regarding stock futures) | Rule 2804(g) (governing adjustments of options on index futures or variance futures) | OCC proposes to relocate Section 4(e) of Article XII of the By-Laws as proposed Rule 2804(g) to provide that where OCC adjusts an index futures or variance futures contract underlying a futures option, such futures option ordinarily will be adjusted to provide, upon exercise, for delivery of the futures contract as adjusted by OCC. |
| Section 3(h) and Interpretations and Policies .01 of Section 3 of Article XVII (regarding index options and certain other cash-settled options | Rule 2804(h) (rule application and adjustment authority for OTC options) | OCC proposes to combine and relocated 3(h) and Interpretations and Policies .01 of Section 3 of Article XVII of the By-Laws to Rule 2804(g). Reference to applicability of Article VI, Sections 11 and 11A are removed as they are included in Rule 2804(a) as references to Rules 2801 and 2803. |

**Proposed Rule 2805—Adjustment of Cash-Settled Foreign Currency Options and Futures**

OCC proposes to set forth in Rule 2805 provisions related to adjustment of cash-settled foreign currency options and futures. Proposed Rule 2805 would consolidate into a single Rule provisions currently located in Section 3 of Article XXII and Section 4A(a) of Article XII of the By-Laws. The table below describes where current By-Law provisions are being relocated to proposed Rule 2805 and notable changes to such provisions.

| Current By-Law | Proposed Chapter XXVIII Rule | Notable changes |
| --- | --- | --- |
| Section 3 of Article XXII (regarding cash-settled foreign currency options); and Section 4A(a) of Article XII (regarding stock futures) | Rule 2805 (regarding adjustment of cash-settled foreign currency options and futures) | OCC proposes to relocate Section 3 of Article XXII and Section 4A(a) of Article XII of the By-Laws (including Interpretation and Policy .01 to each) as proposed Rule 2805 to address adjustments of cash-settled foreign currency options and cash-settled foreign currency futures.
                            
                             OCC proposes to set forth Interpretation and Policy .01 of these By-Law provisions as proposed Rule 2805(b) without substantive change. OCC proposes to delete a reference in Section 3 of Article XXII of the By-Laws providing that “[t]he provisions of Article VI, Section 11 of the By-Laws shall apply equally to adjustments made by OCC pursuant to this Article XXII, Section 4,” because these references would be no longer current and are not necessary.
                            
                             OCC does not propose substantive changes to these provisions. |

**Proposed Consolidation of Adjustments for All Instruments Cleared by OCC Into a Single Rule Chapter**

As noted above, one of the key purposes of the proposed rule change is to consolidate into the Chapter XXVIII Rule series the various By-Law provisions relating to adjustments for different types of instruments cleared by OCC, including: (i) options contracts (Article VI of the By-Laws); (ii) futures, futures options and commodity options (Article XII of the By-Laws); (iii) index options and certain other cash-settled options (Article XVII of the By-Laws); and (iv) cash-settled foreign currency options (Article XXII of the By-Laws). Currently, each of the Articles in OCC's By-Laws regarding each type of cleared instrument has a separate provision concerning adjustments, and in many cases these provisions are substantially similar or identical to each other. For example, Section 11(a) of Article VI of the By-Laws (regarding options), Section 3(b) of Article XII of the By-Laws (regarding futures), and Section 3(b) of Article XVII (regarding index options and certain other cash-settled options) each provide, among other things, that OCC shall determine whether to make adjustments to reflect particular events in respect of an underlying interest based on OCC's judgment as to what is appropriate for the protection of investors and the public interest, taking into account such factors as fairness to holders and writers (or purchasers and  sellers) of the instruments, the maintenance of a fair and orderly market in the affected contracts, and consistency of interpretation and practice. [^13] Rather than setting forth separate provisions that are substantively similar for each of these different instruments, OCC believes Clearing Members and the public would benefit from having a single set of Rules describing OCC's practices related to adjustments, including the criteria OCC considers in making such adjustments.

[^13] The adjustment provisions for options contracts and futures contracts also specify two additional criteria to be considered: (i) the efficiency of exercise settlement procedures and (ii) the coordination with other clearing agencies of the clearance and settlement of transactions in the underlying interest. OCC proposes that all instruments would be subject to these two additional criteria pursuant to proposed Rule 2801, which OCC believes are also potentially relevant considerations for determining adjustments for index options and certain other cash-settled options.

To accomplish this objective, OCC proposes in a number of places to add language to an existing provision of Section 11, Article VI of the By-Laws, restated as a Chapter XXVIII Rule, to add mention of “stock future(s)” and add other relevant text to ensure the proposed Rule appropriately applies to stock futures ( *e.g.,* by adding mention of the “settlement price” of a stock future). [^14] OCC has highlighted proposed newly added text in Exhibit 3A of filing SR-OCC-2025-017 to indicate such changes where OCC proposes to integrate stock futures provisions into a proposed Rule that is based off of an options-related adjustment provision.

[^14]*See e.g.,* proposed Rule 2803(h). Options contracts involve an exercise price while a stock future involves a settlement price. Accordingly, where OCC proposes to integrate stock futures into an existing options-related adjustment provision, OCC proposes to add reference to a stock future's settlement price where the current provision references an exercise price.

**Proposed New Provisions Related to Adjustments**

OCC also proposes to add several new provisions related to its adjustment process which are intended to codify in OCC's rules certain practices that OCC has developed with respect to adjustments under OCC's existing adjustment authority. OCC believes that these additions will provide greater detail and transparency regarding OCC's current adjustment practices. Each new provision is described below.

**Distributions “in Lieu of” Ordinary Dividends or Distributions**

OCC proposes two additions to the Rules to reflect that distributions made in lieu of ordinary dividends or distributions will generally not result in an adjustment regardless of the manner in which the dividend is ultimately paid. The first of these additions applies to cash dividends or distributions with rule text in proposed Rule 2803(c)(1)(iii)(B), providing that as a general rule, a stock dividend or distribution by the issuer of the underlying security that is paid in lieu of a cash dividend or distribution which otherwise would have been an ordinary distribution as a cash dividend or distribution, will be deemed to be “ordinary distributions” and therefore will generally not warrant an option contract adjustment. [^15] This provision is intended to clarify that where an issuer initiates some form of distribution that is paid in lieu of a cash dividend or distribution that would have been considered an ordinary distribution, OCC will view such “in lieu of” distribution as an ordinary distribution. [^16] OCC believes that treating such an “in lieu of” distribution as an ordinary distribution where the cash dividend or distribution would have otherwise been considered an ordinary distribution is consistent with OCC's current adjustment rules, which are broadly designed to treat ordinary distributions as such, even where an ordinary distribution may be replaced with an “in lieu of” distribution.

[^15]*See* n.16 of Exhibit 3A of filing SR-OCC-2025-017.

[^16] For example, if an issuer normally provides a cash dividend each quarter but in one quarter determines to provide a stock dividend in lieu of such cash dividend, OCC will consider the stock dividend as an ordinary distribution.

Second, OCC proposes Rule 2803(c)(3)(v) to provide that adjustments generally will not be made where a dividend or distribution is determined to be ordinary regardless of whether it is subject to a shareholder election regarding the form in which it will be paid, such as cash or stock. OCC believes that this proposed provision would be consistent with Section 11A(a) of Article VI of OCC's By-Laws (replaced by proposed Rule 2803(c)(1)), which generally provides that OCC will not make adjustments where a stock or cash dividend or distribution is considered to be ordinary. The purpose of this proposed Rule 2803(c)(3)(v) is to make clear that the determination of whether a dividend or distribution is considered ordinary will generally determine whether OCC will make an adjustment for such dividend or distribution, notwithstanding that there may have been a shareholder election to determine the precise form of the ordinary distribution.

**Cash in Lieu of Fractional Entitlements**

In certain circumstances, the terms of a corporate action on an underlying security of an option may result in a fractional entitlement per 100 shares of stock for which cash will be paid in lieu of the fractional shares. In such situations, a contract adjustment that is effective on the option in response to the corporate action on the underlying security may result in an adjusted option deliverable that includes a cash component in lieu of fractional shares. For example, in the case of a stock dividend where fractional entitlements are paid as cash in lieu of additional shares, if the issuer of XYZ stock issues a stock dividend for all whole shares with a distribution rate of 18.2 percent, an owner of 100 shares of XYZ stock would be entitled to 18.2 shares, which may be distributed as 18 whole shares of XYZ and cash-in-lieu amount for the 2/10 share. Such situations can result from various types of corporate actions, such as mergers and spinoffs, among others. OCC proposes to add several provisions to its adjustments Rules to directly address adjustments in the context of cash in lieu of fractional entitlements.

First, OCC proposes to add a new provision as Rule 2803(k) providing that cash amounts in lieu of fractional share entitlements included in adjusted deliverables will generally be made in a manner consistent with the cash-in-lieu price used by a central securities depository clearing agency. The purpose of this provision is to make clear that where a stock dividend or distribution by an issuer involves some cash amount in lieu of fractional share entitlements and OCC determines that an adjustment is necessary pursuant to its By-Laws and Rules, OCC will generally seek to align its distribution with the approach taken by the central securities depository clearing agency ( *i.e.,* Depository Trust Company) so that an option's adjusted deliverable resulting from a corporate action reflects the amount of cash paid in lieu of fractional shares that the holder of 100 shares of the underlying security receives from the corporate action. This is and has been the longstanding practice of determining cash in lieu of fractional shares for adjusted option deliverables, as evidenced by the following examples:

• On February 12, 2024, options on Precision BioSciences, Inc. (“DTIL”) were adjusted in response to a 1-for-30 reverse stock split, and the adjusted deliverable resulting from the option contract adjustment called for 1) 3 (New) DTIL Common Shares and 2) cash in lieu of approximately 0.3333  fractional DTIL Shares. After the cash-in-lieu price was available from the central securities depository clearing agency, OCC published an information memo stating that the price of $11.81 was used to determine the cash-in-lieu component amount of $3.94 cash per contract (.3333 × $11.81 = $3.94). [^17]

[^17]*See* OCC Information Memo #54176, https://infomemo.theocc.com/infomemos?number=54176.

• On February 11, 2015, options on Intervest Bancshares Corporation (“IBCA”) were adjusted in response merger with Bank of the Ozarks, Inc. (“OZRK”), and the adjusted deliverable resulting from the option contract adjustment called for 1) 30 OZRK Common Shares, and 2) cash in lieu of 0.14 fractional OZRK Common Shares. After the cash-in-lieu price was available from the central securities depository clearing agency, OCC published an information memo stating that the price of $33.88 was used to determine the cash-in-lieu component amount of $4.74 cash per contract (0.14 × $33.88). [^18]

[^18]*See* OCC Information Memo #36262, https://infomemo.theocc.com/infomemos?number=36262.

• On April 12, 2015, PC Mall, Inc. (“MALL”) distributed 1.2071 common shares of eCOST.com, Inc. (“ECST”) to MALL Shareholders for each share held as a spinoff, and the adjusted deliverable resulting from the option contract adjustment called for 1) 100 MALL Common Shares, 2) 120 ECST Common Shares, and 3) cash in lieu of .71 fractional ECST Shares. After the cash-in-lieu price was available from the central securities depository clearing agency, OCC published an information memo stating that the price of $4.61was used to determine the cash-in-lieu component amount of $3.27 cash per contract (.71 × $4.61 = $3.27.) [^19]

[^19]*See* OCC Information Memo #20861, https://infomemo.theocc.com/infomemos?number=20861.

In connection with clarifying language in Rule 2803(k), OCC notes that in rare instances, OCC may be required to independently determine a cash-in-lieu price for fractional shares because of the terms of the underlying corporate action. For example, on July 13, 2007, options on CBOT Holdings, Inc. (“BOT”) were adjusted to reflect the merger between BOT and CME Group Inc. (“CME”). [^20] The adjusted options deliverable became 1) 37 CME Group Inc. (“CME”) Common Shares and 2) cash in lieu of .5 fractional CME shares. However, pursuant to the terms of the corporate action, CME issued fractional shares instead of paying cash in lieu of fractional shares. Because OCC cannot facilitate settlement of fractional shares, it was determined that the closing price from the day prior to the consummation of the merger would be used to determine the cash-in-lieu amount. Such situations are very uncommon, but when they do occur OCC may utilize its authority currently in Section 11A(e) of Article VI and in proposed Rule 2803(j) to determine the cash value of any distributed property.

[^20]*See* OCC Information Memo #23267, https://infomemo.theocc.com/infomemos?number=23267.

Second, pursuant to Article VI, Section 11A(c) paragraph (y) of OCC's By-Laws (redesignated as proposed Rule 2803(c)(2) under this Proposal), OCC will generally not make an adjustment to a stock option contract for any cash dividend or distribution of the underlying security if such dividend or distribution is less than $0.125 per share. [^21] For the avoidance of doubt, OCC proposes to note that this provision is not applicable to cash paid in lieu of fractional share entitlements or other distributed property. Specifically, OCC proposes to state in Rule 2803(c)(2) that in connection with contract adjustment determinations involving fractional entitlements (for example in respect of stock rights, contingent value rights or other distributions) the determination will not be subject to this general rule. [^22] This proposed change is necessary to clarify that adjustments in lieu of property are governed by other provisions of proposed Rule 2803. Additionally, this clarification aligns with longstanding practices. For example, on January 31, 2013, options on LATAM Airlines Group S.A. (“LFL”) were adjusted in response to a $ 0.011576 cash distribution made to holder of LFL American Depositary Shares in lieu of rights that were distributed to LFL common shareholders. [^23] The adjustment was effected by reducing option strike prices by 0.011576 despite the fact that the distribution amount was below the $0.125 adjustment threshold established by Article VI, Section 11A, Interpretation and Policies .08 because the $0.125 adjustment threshold does not apply to this type of contract adjustment.

[^21] Where the stock option contract is originally listed with a unit of trading larger than 100 shares, the applicable threshold under both OCC's current and proposed By-Laws and Rules, the applicable threshold is $12.50 per contract.

[^22]*See* n.22 of Exhibit 3A of filing SR-OCC-2025-017. As a result of this proposed provision, where OCC a distribution involves cash in lieu of fractional entitlements, OCC would not be subject to the general rule that it will not make an adjustment if the dividend or distribution is that $0.125 per share (or $12.50 per contract where the option contract is originally listed with a trading unit of more than 100 shares).

[^23]*See* OCC Information Memo #32143, https://infomemo.theocc.com/infomemos?number=32144.

**Election Mergers or Similar Events**

OCC proposes to add a new provision as Rule 2803(i) providing that the deliverable resulting from an adjustment in the case of an election merger or similar event involving shareholder elections, such as shareholder election of a non-ordinary dividend, will generally be based on the consideration accruing to a non-electing shareholder if the Corporation determines in its sole discretion that it is readily able to facilitate delivery of that consideration. The purpose of this provision is to provide additional details to the Rules to describe the longstanding adjustment practice for corporate action events involving shareholder elections to reflect, to the extent possible, what a shareholder who does not make an election will receive. [^24] For example, on September 26, 2014, Iron Mountain Incorporated (“IRM”) was ex-distribution a $3.62 special dividend payable in cash or stock at the election of IRM shareholders. Pursuant to the terms of the corporate action on the underlying security, IRM shareholders who did not make an election for the dividend would receive the dividend in the form of shares, and the corresponding contract adjustment to IRM options ultimately resulted in an adjustment deliverable of 1) 110 IRM Common Shares, and 2) $5.97 cash resulting from cash in lieu of fractional shares. [^25] As an additional example, on February 1, 2006, Siebel Systems, Inc. (“SEBL”) merged with Oracle Corporation, and the merger was subject to SEBL shareholder election to receive the merger consideration in the form of cash or stock. Pursuant to the terms of  the underlying corporate action, SEBL shareholders who did not make an election received the cash consideration, and the corresponding contract adjustment to SEBL options resulted in an adjusted option deliverable of $1033.00 cash per option contract. [^26]

[^24] OCC notes that there may be circumstances where it is not possible to determine the make an adjustment that aligns with the interest of a non-electing shareholder. For example, in anticipation of the consummation of the election merger whereby Allis-Chalmers Energy Inc. was acquired by Seawell Limited, OCC published Information Memos #28424 and #28448 to state that if the non-electing merger consideration included a security that did not trade on a U.S. market, a U.S. dollar equivalent would be determined for the non-electing merger consideration as the adjusted options deliverable. Although the non-electing merger consideration was subsequently determined to be all cash as states in Information Memo #28570, the information in Information Memos #28424 and #28448 illustrates that it is possible that the non-electing merger consideration may not be used to determine an adjusted option deliverable in rare circumstances. *See* OCC Information Memo #28424, https://infomemo.theocc.com/infomemos?number=28424; OCC Information Memo #28448 https://infomemo.theocc.com/infomemos?number=28448; OCC Information Memo #28750 https://infomemo.theocc.com/infomemos?number=28570.

[^25]*See* OCC Information Memos #35275, https://infomemo.theocc.com/infomemos?number=35311;#35663, https://infomemo.theocc.com/infomemos?number=35663.

[^26]*See* OCC Information Memo #21403, https://infomemo.theocc.com/infomemos?number=21403.

**Other Events Not Ordinarily Resulting in an Adjustment**

OCC proposes to add a new provision to specify an additional type of event that will ordinarily not result in an adjustment. OCC's current By-Laws relocated to new Rule 2803(c)(3) under this Proposal, specify certain types of events that will ordinarily not result in an adjustment, such as the issuance of so-called “poison pill” rights, tender offers, or changes in capital structure. OCC proposes to add an additional type of event to this list for transparency purposes to reflect longstanding adjustment determination practices. OCC proposes Rule 2803(c)(3)(iv) to provide that adjustments generally will not be made to reflect a distribution of non-transferable property. OCC proposes this addition because distributions of non-transferable property can neither be traded on a national market nor transferred through the facilities of a central securities depository clearing agency. As a practical matter, there is no means to facilitate delivery of non-transferable distributions in fulfilment of option exercises and assignments and no trading price of the non-transferable property to provide a value. OCC therefore has determined in the past that adjustments would not be made for distributions of non-transferable property. As an example, in November of 2018, Pulse Biosciences, Inc. (“PLSE”) distributed non-transferable rights to PLSE shareholders. In response to this non-transferable distribution, OCC issued Information Memo #43972 to state that no adjustment would be made. [^27] In this and other instances when adjustments are not made for a non-transferable distribution, call option holders who receive the distribution must exercise their options in sufficient time to become a holder of record with entitlement to receive the distribution. OCC would, however retain general authority pursuant to proposed Chapter XXVIII of the Rules to make adjustments to non-transferable property on a case-by-case where necessary.

[^27]*See* OCC Information Memo #43972, https://infomemo.theocc.com/infomemos?number=43972.

**Cash Value Determination**

Section 11A(e) of Article VI and the last sentence of Section 3(e) of Article XII of the By-Laws both provide that OCC has authority to determine the value of distributed property with respect to any adjustments. As previously noted, OCC proposes to relocate this provision as Rule 2803(j). OCC also proposes to add to Rule 2803(j) additional text providing that OCC may use this authority in circumstances that include but are not limited to cases in which OCC determines that the final amount or distribution resulting from a corporate action may not be determined for a long period. OCC proposes to add this additional text to make clear that OCC would consider using its authority to determine the value of distributed property when OCC expects that it may take a long period of time to determine the final amount of a distribution resulting from a corporate action. Where a lengthy delay to determine the distributed property value is expected, options or stock futures contracts may expire or mature prior the time when the value is determined, which would leave such options and stock futures contract holders with considerable uncertainty as to the value of their position and their positions subject to delayed settlement for an extended period of time. As a historical example of this type of situation, options on Winthrop Realty Trust (“FUR”) were adjusted on August 8, 2016, in response to the liquidation of the underlying security. As detailed in Information Memo #39462, assets and liabilities of the trust were transferred to a liquidating trust, and each FUR share would be converted into a non-transferable Unit of Beneficial Interest in the liquidating trust. Since the timing and amount of any liquidating distributions were unknown and because the Unit of Beneficial Interest could not be transferred, the adjustment determination was made to set a cash value equivalent for FUR Shares using a high and low price from the last day of trading, thereby allowing settlement to occur in a timely manner. In certain situations, OCC believes that it is appropriate to use its existing authority to determine the cash value of distributed property in such circumstances. OCC believes that adding this provision to proposed Rule 2803(j) will provide detail regarding the anticipated use cases of such provision, which OCC believes furthers the protection of investors and the public interest. [^28]

[^28] 15 U.S.C. 78q-1(b)(3)(F).

**Foreign Withholding Tax**

OCC proposes to add as Rule 2803(l) a provision relating to foreign withholding tax, which would provide that, in general, all contract adjustments will be made net of any relevant foreign withholding taxes, with the exception of events for which local tax authorities issue rulings that exempt certain groups from the withholding tax and it is reasonable that U.S. investors collectively can be included in such groups. [^29] The purpose of this provision is to make clear to market participants that OCC's contract adjustments will ordinarily include foreign withholding taxes unless, as noted above, there is an exception from local tax authorities in the foreign jurisdiction for which OCC reasonably believes U.S. investors could avail themselves. For example, on May 12, 2023, Loma Negra Compania Industrial Argentina Sociedad Anonima (“LOMA”) was ex-dividend a $0.4010845 distribution; however, the contract adjustment for this event on LOMA options reduced option strike prices by 0.3530086 as the net dividend, reduced by foreign withholding tax and a dividend fee. [^30] In contrast, the cash settlement adjustment for DSP Group, Inc. (“DSPG”) options in response to the all-cash merger of DSPG with a subsidiary of Synaptics Incorporated, did not reduce the cash settlement amount by any withholding tax because DSPG received an Israeli Tax Authority ruling, exempting non-Israeli shareholders from withholding. [^31] OCC investigates withholding tax information on foreign securities routinely and intends to adjust options taking withholding tax into account in the manner described above when such information is readily available.

[^29]*See* n.41 of Exhibit 3A of filing SR-OCC-2025-017.

[^30]*See* OCC Information Memo #52394, https://infomemo.theocc.com/infomemos?number=52394.

[^31]*See* OCC Information Memo #49777, https://infomemo.theocc.com/infomemos?number=49777.

**Adjustments Made per Contract**

OCC proposes to add as Rule 2803(m) a provision specifying that all contract adjustments will be made on a per contract basis. As a practical matter, all exercises and assignments of options are based on a single contract as the lowest possible holding of an option. Consequently, contract option adjustments must also be made on a per contract basis. This practice is required for the proper functioning of the exercise and assignment process;  however, this fact is not explicitly stated in OCC's By-Laws and Rules. OCC proposes to add this provision to promote clarity, consistency, and understanding of its Rules.

**Proposed Updates to By-Laws Sections for Adjustment Provisions Relating to Products Not Actively Traded**

OCC's By-Laws relating to certain products that are not currently actively traded have provisions relating to contract adjustments for such products. These provisions generally provide that adjustments for such products will be governed by Section 11 and/or Section 11A of Article VI of the By-Laws or, in the case of Packaged Spread Options, Section 3 of Article XVII of the By-Laws. As these adjustment-related provisions of the By-Laws would be deleted under the Proposal and moved to Chapter XXVIII of the Rules, OCC proposes to update the cross references in the By-Laws relating to the inactive products to correspond to the appropriate Rule provisions in Chapter XXVIII.

Specifically, OCC proposes to modify the following adjustment related cross references for products that are not actively traded today:

• *Binary options and range options (Article XIV)* —The following cross references would be updated in Article XIV: (i) in the bracketed language at the end of Section 3, the reference to Section 11 and 11A of Article VI of the By-Laws would be updated to refer to Chapter XXVIII of the Rules; (ii) the reference to Section 11 of Article VI of the By-Laws in Section 3A(a)(2) would be updated to refer to Rule 2801 and Rule 2802; (iii) the reference to Section 11(a) of Article VI of the By-Laws in Section 3A(d) would be updated to refer to Rule 2801; (iv) the reference to Article VI, Section 11A of the By-Laws in Interpretation and Policy .02 would be updated to refer to Rule 2803(c)(1)(iv); and (v) the reference to Section 11 of Article VI of the By-Laws in Section 3B(d) would be updated to refer to Rule 2801 and Rule 2802.

• *Foreign currency options (Article XV)* —The following cross references would be updated in Article XV: (i) the reference to Article VI, Section 11 of the By-Laws in Section 4 would be updated to refer to Rule 2801 and Rule 2802; and (ii) in the bracketed language at the end of Section 4, the reference to Section 11A of would be updated to refer to Rule 2803 and the reference to Article VI of the By-Laws would be updated to refer to Chapter XXVIII of the Rules.

• *Yield-based Treasury options (Article XVI)* —The following references would be updated in Article XVI: (i) the reference to Section 11 of Article VI of the By-Laws in Section 3(a) and (d) would be updated to refer to Rule 2801 and Rule 2802; (ii) in the bracketed language at the end of Section 3, the reference to Section 11 of Article VI of the By-Laws would be updated to refer to Rule 2801 and Rule 2802; and (iii) the reference to Section 11 of Article VI of the By-Laws in Section 4(a)(2) would be updated to refer to Rule 2802.

• *BOUNDS (Article XXIV)* —The following references would be updated in Article XXIV: (i) the references to Section 11 and Section 11A of Article VI of the By-Laws, including reference to Interpretations and Policies following Section 11A, in Sections 4(a) and 4(f) of Section 4 would be updated to refer to Rule 2801, Rule 2802 and Rule 2803; (ii) the references to Section 11A of Article VI of the By-Laws in Sections 4(d) as well as the second reference to Section 11A contained in Section 4(a) of Section 4 would be updated to refer to Rule 2803; and (iii) in the bracketed language at the end of Section 4 would be updated to refer to Chapter XXVIII of the Rules.

• *Packaged spread options (Article XXVI)* —The reference in Section 3 of Article XXVI to Section 3 of Article XVII of the By-Laws would be changed to Rule 2804.

These proposed changes are not intended as substantive changes but rather are necessary to ensure consistency in OCC's Rules, notwithstanding that they pertain to products that are not currently traded.

**Proposed Updates to By-Laws Sections Governance Provisions for By-Law and Rules Amendments**

Article XI, Section 1 of the By-Laws states that amendment to certain provisions of the By-Laws, including Sections 11 and 11A of Article VI, requires approval of the holders of all outstanding Common Stock of OCC. Because of the proposed relocation of the content of Sections 11 and 11A of Article VI to Chapter XXVII of the Rules, OCC proposes to move the requirement for stockholder approval to Section 2 of Article XI, which states the requirements for amendments to the Rules, by including language that amendment to Chapter XXVII of the Rules will require approval of the holders of all outstanding Common Stock of OCC.

**2. Statutory Basis**

OCC believes the proposed rule change is consistent with Section 17A of the Act [^32] and the rules thereunder applicable to OCC. Section 17A(b)(3)(F) of the Act requires, among other things, that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions (and, to the extent applicable, derivative agreements, contracts, and transactions), to remove impediments to and perfect the mechanism of a national system for the prompt and accurate clearance and settlement of securities transactions, and, in general, to protect investors and the public interest. [^33] OCC believes that the proposed changes are consistent with these provisions of Section 17A(b)(3)(F) because they would provide greater clarity, consistency, and understanding of OCC's adjustment practices and further the goals of Section 17A(b)(3)(F). The primary purpose of the proposed rule change is to consolidate and relocate OCC's current By-Law provisions related to adjustments into a single Rule chapter (Chapter XXVII). Currently, OCC's practices with respect to adjustments are, in many cases, described in separate By-Law provisions that pertain to a specific type of option or derivative, notwithstanding that such separate provisions are substantially similar to one another. OCC believes that consolidating these provisions into a single Rule chapter, which will allow Clearing Members and the public to review a single Rule chapter relating to adjustments that covers all instruments cleared and settled by OCC rather than separate By-Law provisions specific to a particular type of contract, will improve the readability of OCC's adjustment rules and facilitate greater understanding of OCC's Rules and adjustment practices. OCC believes that greater understanding of OCC's Rules in turn helps promote the prompt and accurate clearance settlement of securities and derivatives transactions where an adjustment may be necessary by reducing potential uncertainty and questions that may arise among Clearing Members and holders and writers (or buyers and sellers) of options (or derivatives) contracts. OCC also believes that greater understanding of its Rules and adjustment practices helps removes impediments to and helps perfect the mechanism of a national market system for the prompt and accurate settlement of securities transactions and, in general, promotes the protection of investors and the public interest by similarly reducing uncertainty as to when and how an adjustment made by OCC might occur and the potential  impact on a market participant's options or futures contract.

[^32] 15 U.S.C. 78q-1.

[^33] 15 U.S.C. 78q-1(b)(3)(F).

While the majority of the proposed changes to OCC's By-Laws and Rules would simply relocate existing By-Law provisions related to adjustments into Chapter XXVIII of OCC's Rules without substantive changes, OCC also proposes certain new provisions related to adjustments, including with respect to: (i) distributions “in lieu of” an ordinary dividend or distribution; (ii) cash in lieu of fractional entitlements; (iii) election mergers or similar events; (iv) certain other events not ordinarily resulting in an adjustment ( *e.g.,* for non-transferable property); (v) cash value determinations (to provide that OCC may use its authority to determine the cash value of a distribution when the final determination of a corporate action may not be determined for a long period of time); (vi) foreign tax withholding; and (vii) to specify that adjustments are made on a per contract basis. Each of these proposed new provisions is designed to provide greater specificity and clarity with respect to OCC's adjustment practices than are currently set forth in OCC's By-Laws and Rules. These proposed new provisions are also already within the scope of OCC's existing adjustment authority, which provides OCC with broad discretion to adjust the terms of cleared contract to reflect particular events in respect of an underlying interest, taking into account such factors as (among other things) the 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, and consistency of interpretation and practice. As such, the proposed new provisions are generally utilized by OCC, and the additional language to the Rules will promote additional transparency and clarity to the industry. OCC believes that these proposed new provisions are consistent with Section 17A(b)(3)(F) because they will facilitate greater understanding of OCC's adjustment practices, which in turn promotes the prompt and accurate clearance and settlement of securities and derivatives transactions, helps support the mechanism of a national systems for the prompt and accurate clearance and settlement of securities transactions and generally promotes the protection of investors and the public interest by reducing uncertainty regarding when and how a contract adjustment will be made. [^34]

[^34] For example, because OCC's By-Laws and Rules do not currently explicitly address whether OCC would make an adjustment to reflect a distribution of non-transferable property, market participants could be uncertain as to whether such a distribution might result in an adjustment that would affect their option or derivative contract. By adding proposed Rule 2803(c)(iv) to make clear that such a distribution will not ordinarily result in an adjustment, such uncertainty would be reduced.

OCC also believes that the proposed rule changes are consistent with Rule 17ad-22(e)(1), which requires that a covered clearing agency's policies and procedures provide for a well-founded, clear, transparent, and enforceable legal basis for each aspect of its activities in all relevant jurisdictions. [^35] Specifically, OCC believes that by improving the readability of its Rules governing contract adjustments through the consolidation of adjustment provisions into a single Rule chapter and by providing additional clarity with respect to OCC's adjustment practices in a variety of different situations, OCC policies and procedures regarding contract adjustments will be more clear, transparent and enforceable. [^36]

[^35] 17 CFR 240.17ad-22(e)(1).

[^36] For example, if a market participant were to believe that a distribution of non-transferable property should result in an adjustment, such market participant might try to object to OCC not making an adjustment in respect of such a distribution. By specifying in proposed Rule 2803(c)(iv) that OCC ordinarily would not make an adjustment for such a distribution, there would be greater clarity, consistency, and understanding that this is OCC's practice and reduce any uncertainty about the legal enforceability of OCC's determination to not make an adjustment in such case.

In addition, the proposed rule change is not inconsistent with the existing By-Laws and Rules of OCC, including any rules proposed to be amended.

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

Section 17A(b)(3)(I) of the Act [^37] 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 Act. OCC does not believe that the proposed rule change would impose any burden on competition. As noted, the primary purpose of the proposed rule change is to consolidate and relocate OCC's current By-Law provisions related to adjustments into a single Rule chapter (Chapter XXVIII) and to set forth certain additional provisions that provide greater specificity regarding OCC's adjustment practices. Any adjustment made by OCC pursuant to the Rules set forth in proposed Chapter XXVIII would apply equally to all holders and writers (or buyers and sellers in the case of derivatives contracts). As a result, OCC does not believe that the proposed rule change would result in any competitive burden on market participants. OCC notes that much of the proposed rule changes would simply relocate existing adjustment provisions from OCC's By-Laws into Chapter XXVIII of the Rules without substantive changes, so there would be no change with respect to OCC's adjustments practices with respect to such provisions that could result in a competitive burden. The newly proposed provisions are intended to provide greater clarity regarding OCC's existing adjustment practices which may not be expressly described in OCC's current adjustment provisions. Such new provisions are within OCC's existing, broad adjustment authority and would, in any case, apply equally to all market participants such that they should not give rise to a competitive burden on any one market participant relative to another. For the foregoing reasons, OCC believes the proposed rule change would not impact or impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Act.

[^37] 15 U.S.C. 78q-1(b)(3)(I).

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

Written comments were not and are not intended to be solicited with respect to the proposed rule change; however, OCC did receive an unsolicited letter from a Clearing Member regarding the methodology used to determine cash in lieu of fractional shares. [^38] The letter requested that OCC adopt and publish a uniform policy for a transparent and deterministic method of determining a cash component of an adjusted deliverable for cash in lieu of fractional shares that would also help limit the time required to determine a cash-in-lieu component. The letter encouraged OCC to consider a change to its current practice and suggested instead that OCC could use the closing price from the first day of trading after a contract adjustment is effective. OCC considered this approach and brought the suggestion to the OCC Operations Roundtable. [^39] The OCC Operations Roundtable overwhelmingly agreed that the current process should not change, stating that there is credibility to the process that uses the cash-in-lieu price as provided by the central securities depository clearing agency. [^40] OCC also  believes it appropriate to continue to use its current practice of using the cash-in-lieu price used to determine cash received by shareholders of the underlying security in lieu of fractional shares as it reflects what is received by shareholders of the underlying security as a result of the corporate action that resulted in the options adjustment. Utilizing a different method would be arbitrary and stray from the terms of the underlying corporate action.

[^38] OCC has filed the letter as confidential Exhibit 3B to File No. SR-OCC-2025-017.

[^39] The Operations Roundtable consists of operations staff of a cross-section of OCC's Clearing Members and staff of the options exchanges.

[^40] OCC has filed notes from Operations Roundtable meetings held on November 2, 2023  and January 30, 2024 as confidential Exhibit 3C to File No. SR-OCC-2025-017.

To the Clearing Member's request for additional transparency, OCC believes that the addition of provisions to the Rules explaining the manner in which cash in lieu of fractional shares is determined will provide greater clarity, consistency, and transparency for the industry.

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

Within 45 days of the date of publication of this notice in the *Federal Register* or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will:

(A) by order approve or disapprove such proposed rule change, or

(B) institute proceedings to determine whether the proposed rule change should be disapproved.

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

**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-2025-017 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-2025-017. 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 such filing 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-2025-017 and should be submitted on or before October 22, 2025.

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. [^41]

[^41] 17 CFR 200.30-3(a)(12).

Sherry R. Haywood,

Assistant Secretary.