Rule 780. Exercise of Option Contracts
This rule is no longer applicable effective February 17, 2009.
(a) Subject to the restrictions established by the Exchange pursuant to Rule 705 (Exercise Limits) and to such other restrictions which may be imposed by the Exchange pursuant to Rules 707 (Liquidation of Positions) and 709 (Other Restrictions on Exchange Option Transactions and Exercises) or by The Options Clearing Corporation ("OCC") pursuant to its rules, an outstanding option contract may be exercised during the time period specified in OCC rules by the tender to OCC of an exercise notice in accordance with OCC rules. An exercise notice may be tendered to OCC only by the clearing member in whose account with OCC the option contract is carried. Members and member organizations may establish fixed procedures as to the latest hour at which they will accept exercise instructions from customers.
Exercise Cut-Off Time for Expiring Equity Options
Final Decisions
(b)
(i) A member or member organization shall indicate to the Exchange final decisions of holders of equity options either to exercise or not to exercise expiring equity options no later than 5:30 p.m. New York time on the business day immediately prior to the expiration date (the "exercise cut-off-time"). For that purpose, a member or member organization must either (A) submit a "Contrary Exercise Advice" (as described in paragraph (c) of this Rule 780) to the Exchange or (B) take no action and allow exercise determinations to be made in accordance with OCC's exercise-by-exception produces (where applicable). This requirement serves in addition to, and not as a substitute for, the exercise notice requirements set forth in paragraph (a) of this Rule 780.
(ii) Exceptions
Notwithstanding the foregoing, members and member organizations may make final exercise decisions after the exercise cut-off time but prior to expiration without having submitted a Contrary Exercise Advice (A) to remedy mistakes or errors made in good faith, (B) to take appropriate action as the result of a failure to reconcile unmatched Exchange option transactions or (C) where exceptional circumstances have restricted the ability (1) of a holder of an equity option to inform a member organization of the holder's decision regarding exercise, or (2) of a member organization to receive the holder's decision prior to the exercise cut-off time. The burden of establishing any of the above exceptions rests solely on the member or member organization seeking to rely on the exemption.
Notwithstanding the foregoing, members and member organizations may make final exercise decisions after the exercise cut-off time but prior to expiration without having submitted a Contrary Exercise Advice (A) to remedy mistakes or errors made in good faith, (B) to take appropriate action as the result of a failure to reconcile unmatched Exchange option transactions or (C) where exceptional circumstances have restricted the ability (1) of a holder of an equity option to inform a member organization of the holder's decision regarding exercise, or (2) of a member organization to receive the holder's decision prior to the exercise cut-off time. The burden of establishing any of the above exceptions rests solely on the member or member organization seeking to rely on the exemption.
Contrary Exercise Advice
Definition
(c)
(i) A "Contrary Exercise Advice" is a form that the Exchange prescribes for use by a member or member organization to convey a final exercise decision of an equity options holder either (A) not to exercise an equity option that would otherwise be automatically exercised pursuant to the exercise-by-exception procedure of OCC Rule 805 or (B) to exercise an equity option that would otherwise not be so exercised.
(ii) Submission Procedures
A member or member organization may submit a Contrary Exercise Advice at any place that a national options exchange designates for that purpose, so long as the submitting member or member organization is a member or member organization of the national options exchange and the option is listed on that exchange. Alternatively, the member or member organization may transmit a Contrary Exercise Advice to the Exchange via OCC in such format as OCC may prescribe.
A member or member organization may submit a Contrary Exercise Advice at any place that a national options exchange designates for that purpose, so long as the submitting member or member organization is a member or member organization of the national options exchange and the option is listed on that exchange. Alternatively, the member or member organization may transmit a Contrary Exercise Advice to the Exchange via OCC in such format as OCC may prescribe.
(iii) OCC Waivers
Where OCC has waived the exercise-by-exception procedure, a member or member organization wishing either to exercise an option that would not be automatically exercised in the absence of such a waiver, or not to exercise an option that would be automatically exercised in the absence of such a waiver, must still submit a Contrary Exercise Advice. The applicable price of the underlying security in such instances shall be the last sale price in the primary market for the underlying security, except as OCC Rule 805(1) otherwise provides. OCC Rules may require submission of an affirmative exercise notice even in circumstances where a Contrary Exercise Advice is not required.
Where OCC has waived the exercise-by-exception procedure, a member or member organization wishing either to exercise an option that would not be automatically exercised in the absence of such a waiver, or not to exercise an option that would be automatically exercised in the absence of such a waiver, must still submit a Contrary Exercise Advice. The applicable price of the underlying security in such instances shall be the last sale price in the primary market for the underlying security, except as OCC Rule 805(1) otherwise provides. OCC Rules may require submission of an affirmative exercise notice even in circumstances where a Contrary Exercise Advice is not required.
(d) Reporting Responsibility
Each member or member organization that maintains a proprietary or customer account position in an expiring equity option is responsible for ensuring that final exercise decisions are communicated to the Exchange. Member organizations that have accepted the responsibility to indicate final exercise decisions on behalf of another member or non-member firm shall take reasonable steps to ensure that such decisions are properly communicated to the Exchange.
Each member or member organization that maintains a proprietary or customer account position in an expiring equity option is responsible for ensuring that final exercise decisions are communicated to the Exchange. Member organizations that have accepted the responsibility to indicate final exercise decisions on behalf of another member or non-member firm shall take reasonable steps to ensure that such decisions are properly communicated to the Exchange.
(e) Processing Cut-Off Time
Each member organization may establish a processing cut-off time prior to the Exchange's exercise cutoff time at which it will no longer accept final exercise decisions in expiring equity options from options holders for which they carry accounts.
Each member organization may establish a processing cut-off time prior to the Exchange's exercise cutoff time at which it will no longer accept final exercise decisions in expiring equity options from options holders for which they carry accounts.
(f) Memoranda of Decisions
Each member or member organization shall prepare a memorandum of every final exercise decision for which a Contrary Exercise Advice is required. The memorandum shall include the time when the final exercise decision was made or (in the case of a customer) received. In the event a member or member organization makes a final exercise decision after the exercise cut-off time pursuant to paragraph (b)(ii) of this Rule 780, the member or member organization shall maintain a memorandum setting forth the circumstances regarding the exercise and shall file a copy of the memorandum with the Exchange's Market Surveillance Department not later than 12:00 p.m. on the first business day following expiration. The records requirements of SEC Rule 17a-4(b) shall apply in respect of the memoranda that this paragraph requires.
Each member or member organization shall prepare a memorandum of every final exercise decision for which a Contrary Exercise Advice is required. The memorandum shall include the time when the final exercise decision was made or (in the case of a customer) received. In the event a member or member organization makes a final exercise decision after the exercise cut-off time pursuant to paragraph (b)(ii) of this Rule 780, the member or member organization shall maintain a memorandum setting forth the circumstances regarding the exercise and shall file a copy of the memorandum with the Exchange's Market Surveillance Department not later than 12:00 p.m. on the first business day following expiration. The records requirements of SEC Rule 17a-4(b) shall apply in respect of the memoranda that this paragraph requires.
• • • Supplementary Material: --------------
.10 The following additional procedures shall apply to the exercise of index stock group options.
(a) A member organization shall not tender an exercise notice unless it has received or prepared a memorandum in respect of the exercise by no later than five minutes after the close of trading in index stock group options on that day and has time-stamped the memorandum at the time it is received or prepared. In the event a member organization receives an exercise instruction or tenders an exercise notice pursuant to one of the exceptions set forth in the third sentence of paragraph (b) of this Rule, the member organization shall prepare a memorandum setting forth the circumstances giving rise to such exception.
(b) In the case of exercises of 25 or more contracts of the same series on the same business day on behalf of any account, each member or member organization shall also deliver an "exercise advice" in form prescribed by the Exchange, to a place designated by the Exchange no later than five minutes after the close of trading in index stock group options on that day. For purposes of this paragraph (b), exercises for all accounts controlled by the same individual must be aggregated.
(c) Member organizations must accept exercise instructions until five minutes after the close of trading in index stock group options, except they may impose an earlier deadline for contracts subject to paragraph (c) of this Rule in order to allow a reasonable amount of time for compliance with that paragraph.
(d) The deadlines set forth in this Supplementary Material .10 are not applicable to European-style index options and to other expiring series on the business day prior to expiration.
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Adopted. October 7, 1982. Amendments. September 22, 1983. February 13, 1985. March 31, 1986. May 18, 1993. October 11, 1994. May 14, 1997. |