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Rule 700. Applicability, Definitions and References

This rule is no longer applicable effective February 17, 2009.

(a) Applicability

The Rules in this 700 series (Rules 700 through 794) shall be applicable to (i) the trading on the Exchange of option contracts issued by The Options Clearing Corporation, (ii) the terms and conditions, and the exercise and settlement, of option contracts so traded, and (iii) the handling of orders, and the conduct of accounts and other matters, relating to option contracts dealt in by any member or member organization.

Except as may be specifically provided in the Rules in this series, (i) Rules 6, 45 through 298 and Rule 440B shall not apply to option transactions and (ii) Rule 325(e) shall not apply to members whose transactions on the Exchange are in options solely.
(b) Definitions

As used in the Rules of this 700 series and those other Rules applicable to options transactions, the following terms (and phrases derived by transposing a term's component words) shall, unless the context otherwise indicates, have the meanings specified below:
(1) The term "aggregate discount amount" as used with reference to a Treasury bill option contract means the principal amount of the underlying Treasury bill (i) multiplied by the annualized discount (i.e., 100% minus the exercise price of the option contract) and (ii) further multiplied by a fraction having a numerator equal to the number of days to maturity of the underlying Treasury bill on the earliest date on which it could be delivered pursuant to the rules of The Options Clearing Corporation in connection with the exercise of the option (normally 91 or 182 days) and a denominator of 360.
(2) Aggregate Exercise Price

The term "aggregate exercise price" as used with reference to an option contract means:
(i) if a single stock underlies the option contract, the exercise price of the option contract multiplied by the number of shares of the underlying stock covered by such option contract,
(ii) if a Treasury bond or Treasury note underlies the option contract, (A) the exercise price of the option contract multiplied by the principal amount of the underlying security covered by such option contract, plus (B) accrued interest computed in accordance with the provisions of Rule 242 (Computation of Elapsed Days),
(iii) if a Treasury bill underlies the option contract, the difference between the principal amount of such Treasury bill and the aggregate discount amount,
(iv) if an index stock group underlies the option contract, the exercise price of the option contract times the index multiplier, or
(v) if a GNMA underlies the option contract, the exercise price of the option contract multiplied by the nominal principal amount of the underlying GNMA covered by such option contract.
In the case of an underlying GNMA, if the remaining unpaid principal balance of a GNMA delivered upon exercise of an option contract is a permissible variant of, rather than equal to, the nominal principal amount, the aggregate exercise price shall be adjusted to equal the product of the exercise price and such remaining unpaid principal balance, plus in each case the appropriate differential.
(2A) American-Style Index Options

The term "American-style index options" means an option contract on an index stock group that can be exercised at any time prior to its expiration pursuant to the rules of The Options Clearing Corporation.
(3) Annualized Discount

The term "annualized discount" as used with reference to a Treasury bill means the percent discount from principal amount at which the Treasury bill may be purchased or sold, expressed as a discount for a term to maturity of 360 days.
(4) Applicable Current Options Disclosure Document

The term "applicable current Options Disclosure Document" means, as to any kind of option, the most recent edition of the Options Disclosure Document and any supplement that pertain to that kind of option and that meet the requirements of Rule 9b-1 under the Securities Exchange Act of 1934, as amended.
(5) Appropriate Differential

The term "appropriate differential" as used with reference to a GNMA option contract means a positive or negative amount equal to the product of (i) the difference between the remaining unpaid principal balance of a GNMA delivered upon exercise of that contract and the nominal principal amount, and (ii) the difference between the current cash market price of GNMAs bearing the same stated rate of interest as that borne by the GNMA delivered upon exercise and the exercise price.
(6) Broad Index Stock Group

The term "broad index stock group" means an index stock group of 25 or more stocks whose inclusion and relative representation in the group are determined by the inclusion and relative representation of their current market prices in a widely-disseminated stock index reflecting the stock market as a whole or an inter-industry sector of the stock market.
(7) Broad Index Stock Group Option (Contract)

The term "broad index stock group option (contract)" means an option contract on a broad index stock group.
(8) Call

The term "call" means an option contract under which the holder has the right, in accordance with the terms of the option, to purchase from The Options Clearing Corporation
(i) the number of shares of the underlying stock (if a single stock underlies the option contract),
(ii) the principal amount of the underlying security (if a Government security underlies the option contract),
(iii) the multiple of the current index group value of the underlying group (if an index stock group underlies the options contract), or
(iv) the nominal principal amount or any permissble variant of the underlying GNMA (if a GNMA underlies the option contract) covered by the option contract.
(9) Class (of Options)

The term "class (of options)" means all option contracts of the same type and kind covering the same underlying security or underlying stock group.
(10) Clearing Member

The term "clearing member" means a member or member organization who or which has been admitted to membership in The Options Clearing Corporation pursuant to the provisions of the rules of The Options Clearing Corporation.
(11) Closing Purchase Transaction

The term "closing purchase transaction" means an option transaction in which the purchaser's intention is to reduce or eliminate a short position in the series of options involved in such transaction.
(12) Closing Sale Transaction

The term "closing sale transaction" means an option transaction in which the seller's intention is to reduce or eliminate a long position in the series of options involved in such transaction.
(13) Complement

The term "complement", as used with reference to an annualized discount, means the difference between 100% and the annualized discount.
(14) Covered
(i) The term "covered" in respect of a short position in a call option contract means that the writer's obligation is secured either by a "specific deposit" or an "escrow deposit" meeting the conditions of Rule 610(e) or 610(h), respectively, of the rules of The Options Clearing Corporation, or by a letter of guarantee meeting the requirements of Rule 431(d)(2)(H)(iv) or that the writer holds in the same account as the short position,
(A) on a share-for-share basis (if a single stock underlies the option contract),
(B) on the basis of a matching principal amount (if a Government security underlies the option contract),
(C) on the basis of market value ("covering" underlying stocks) or of the index multiplier ("covering option contracts) (if an index stock group underlies the option contract), or
(D) on the basis of the remaining unpaid principal balance (if a GNMA underlies the option contract), a long position either in the underlying security or underlying index stock group or in an option contract of the same class having an expiration date on or subsequent to the expiration date of the option contract in such short position and having an exercise price equal to or less than the exercise price of the option contract in such short position.
(ii) The term "covered" in respect of a short position in a put option contract means that the writer's obligation is secured by a letter of guarantee meeting the requirements of Rule 431(d)(2)(H)(iv) or that the writer holds in the same account as the short position.
(A) on a share-for-share basis (if a single stock underlies the option contract),
(B) on the basis of a matching principal amount (if a Government security underlies the option contract),
(C) on the basis of the index multiplier (if an index stock group underlies the option contract), or
(D) on the basis of a matching remaining unpaid principal balance (if a GNMA underlies the option contract),
a long position in an option contract of the same class having an expiration date on or subsequent to the expiration date of the option contract in such short position and having an exercise price equal to or greater than the exercise price of the option contract in such short position.
(iii) In the case of a "covering" underlying GNMA, the remaining unpaid principal balance must equal, or be a permissible variant of, the nominal principal amount and the "covering" underlying GNMA must bear a qualifying rate of interest.
(15) Current Cash Market Price

The term "current cash market price" as used with reference to GNMAs means the prevailing price in the cash market for GNMAs bearing a particular stated rate of interest to be delivered on the next applicable monthly settlement date determined in the manner specified in the rules of The Options Clearing Corporation.
(16) Current Options Disclosure Document

See "applicable current Options Disclosure Documents."
(17) Current Index Group Value

The term "current index group value" means $1.00 multiplied by the current value reported for the index that is derived from the current market prices of the stocks in the group. When used with reference to the exercise of an index stock group option, the value is the last one reported on the day of exercise or, if the day of exercise is not a trading day, on the last trading day before exercise.
(18) Designated Rate

The term "designated rate" as used with reference to a GNMA option means a rate of interest of eight percent or such other rate as may be designated in the manner specified in the rules of The Options Clearing Corporation.
(19) European-Style Index Options

The term "European-style index options" means an option contract on an index stock group that can be exercised only at its expiration pursuant to the rules of The Options Clearing Corporation.
(19A) End-of-quarter option

The term "end-of-quarter option" means an index stock group option contract that expires on the second business day of the month following the end of a calendar quarter.
(20) Exchange Option Transaction

The term "Exchange option transaction" means an option transaction effected on the Floor between or among members.
(21) Exchange Options Trading

The term "Exchange options trading" means options trading on the Floor.
(22) Exercise Price

The term "exercise price" in respect of an option contract means
(i) if a single stock underlies the option contract, the stated price per share at which the underlying stock,
(ii) if a Treasury bond or Treasury note underlies the option contract, the specified percentage of the principal amount at which the underlying Treasury security,
(iii) if a Treasury bill underlies the option contract, the specified complement of the annualized discount at which the underlying Treasury bill,
(iv) if an index stock group underlies the option contract, the specified index group value at which the current index group value, or
(v) if a GNMA underlies the option contract, the specified percentage of the nominal principal amount (assuming delivery of a GNMA bearing a stated rate of interest equal to the designated rate at which the underlying GNMA) may be purchased (in the case of call) or sold (in the case of a put) upon the exercise of such option contract. In the case of an underlying GNMA, if the stated rate of interest of a GNMA delivered upon exercise of an option contract is a qualifying rate other than the designated rate, the exercise price shall be an amount which provides the same yield to maturity as the amount which would have been payable if the stated rate of interest had been equal to the designated rate (assuming a 30-year term and prepayment at the end of the twelfth year of the mortgage obligations underlying GNMAs).
(23) Expiration Date

The term "expiration date" in respect of an option contract means the date and time fixed by the rules of The Options Clearing Corporation for the expiration of all option contracts covering the same underlying security or underlying index stock group and having the same expiration month as such option contract.
(24) Expiration Month

The term "expiration month" in respect of an option contract means the month and year in which such option contract expires.
(24A) Floor

The term "Floor" means the Options Trading Floor as delineated in Supplementary Material .10 to Rule 758.
(25) GNMA

The term "GNMA" means a mortgage pass-through security guaranteed as to timely payment of principal and interest by the Government National Mortgage Association, as described in the current standard prospectus of the Department of Housing and Urban Development covering such securities, bearing a stated rate of interest which is a qualifying rate. Any two or more separate certificates representing GNMAs bearing the same qualifying rate delivered in accordance with the rules of The Options Clearing Corporation upon exercise of an option contract shall, for purposes of the Rules in this 700 series, be deemed to be a single GNMA, having a remaining unpaid principal balance equal to the sum of the remaining unpaid principal balances of such separate certificates.
(26) GNMA Option (Contract)

The term "GNMA option (contract)" means an option contract on GNMAs.
(27) GNMA Production Rate

The term "GNMA production rate" means a rate of interest .50 percent below the maximum stated rate of interest on residential mortgages which the Federal Housing Administration is willing to insure and which the Veterans Administration is willing to guarantee, as it may vary from time to time in accordance with official announcements of changes in such rates made by the Federal Housing Administration.
(28) Government Security

The term "Government security" means a bond, note, bill, debenture or other evidence of indebtedness that is a direct obligation of, or an obligation guaranteed as to principal or interest by, the United States or a corporation in which the United States has a direct or indirect interest (except debt securities guaranteed as to timely payment of prinpical and interest by the Government National Mortgage Association).
(29) Government Securities Option (Contract)

The term "Government security option (contract)" means an option contract on Government securities.
(30) Index Multiplier

The term "index multiplier" as used with reference to an index stock group option contract means the amount specified in the contract by which the current index group value is to be multiplied to arrive at the value required to be delivered to the holder of a call or by the holder of a put upon valid exercise of the contract.
(31) Index Stock Group

The term "index stock group" means either a broad index stock group or an industry index stock group.
(32) Index Stock Group Option (Contract)

The term "index stock group option (contract)" means either a broad index stock group option contract or an industry index stock group option contract.
(33) Industry Index Stock Group

The term "industry index stock group" means an index stock group of six or more stocks whose inclusion and relative representation in the group are determined by the inclusion and relative representation of their current market prices in a widely-disseminated stock index reflecting a particular industry or closely-related industries.
(34) Industry Index Stock Group Option (Contract)

The term "industry index stock group option (contract)" means an option contract on an industry index stock group.
(35) Kind of Option

The term "kind of option" means either a stock option contract, a Government security option contract, a broad index stock group option contract, an industry index stock group option contract or a GNMA option contract.
(36) Long Position

The term "long position" means the number of outstanding option contracts of a given series of options held by a person (purchaser).
(37) Nominal Principal Amount

The term "nominal principal amount" as used with reference to a GNMA option means the remaining unpaid principal balance of GNMAs required to be delivered to the holder of a call or by the holder of a put upon exercise of an option without regard to any variance in the remaining unpaid principal balance permitted to be delivered upon such exercise and shall be $100,000 in the case of a single call or put.
(38) Opening Purchase Transaction

The term "opening purchase transaction" means an option transaction in which the purchaser's intention is to create or increase a long position in the series of options involved in such transaction.
(39) Opening Writing Transaction

The term "opening writing transaction" means an option transaction in which the seller's (writer's) intention is to create or increase a short position in the series of options involved in such transaction.
(40) Option (Contract)

The term "option (contract)" means a put or a call issued, or subject to issuance, by The Options Clearing Corporation pursuant to the rules of The Options Clearing Corporation.
(41) Option Transaction

The term "option transaction" means a transaction for the purchase or sale of an option contract, or for the closing out of a long or short position in an option contract.
(42) Options Trading

The term "options trading" means trading in any option issued by The Options Clearing Corporation, whether or not of a type, class or series which has been approved for trading on the Exchange.
(43) Outstanding

The term "outstanding" in respect of an option contract means an option contract which has been issued by The Options Clearing Corporation and has neither been the subject of a closing sale transaction on or through the facilities of, or otherwise subject to the rules of, a Participating Exchange or Association nor been exercised nor reached its expiration date.
(44) Participating Exchange (Association)

The term "Participating Exchange (Association)" means a national securities exchange (association) which has qualified for participation in The Options Clearing Corporation.
(45) Primary Market

The term "primary market" means (i) in respect of an underlying security that is principally traded on a national securities exchange, the principal exchange market in which the underlying security is traded and (ii) in respect of an underlying security that is principally traded in the over-the-counter market, the market reflected by any widely recognized quotation dissemination system or service (the National Association of Securities Dealers Automated Quotation System ("NASDAQ") in the case of a NASDAQ stock).
(45A) Public Customer of a Member Organization

The term "public customer of a member organization" means a customer that is not a broker or a dealer.
(46) Put

The term "put" means an option contract under which the holder has the right, in accordance with the terms of the option, to sell to The Options Clearing Corporation
(i) the number of shares of the underlying stock (if a single stock underlies the option contract),
(ii) the principal amount of the underlying security (if a Government security underlies the option contract),
(iii) the multiple of the current index group value of the underlying group (if an index stock group underlies the option contract), or
(iv) the nominal principal amount or any permissible variant of the underlying GNMA (if a GNMA underlies the option contract) covered by the option contract.
(47) Qualifying Rate

The term "qualifying rate" as used with reference to a GNMA option means any rate of interest equal to or less than the GNMA production rate; provided that:
(i) in the event of any increase in the GNMA production rate, a GNMA issued prior to the date of any such change bearing a stated rate of interest equal to any such increased GNMA production rate (or any lower rate of interest which was not a qualifying rate on the day prior to that date) shall be deemed not to bear a qualifying rate until the expiration of 45 days from the date of such increase or until after the settlement date for options on GNMAs following the next expiration date for any series of such options, whichever shall last occur unless such GNMA bears a stated rate of interest deemed to constitute a qualifying rate in accordance with subparagraph (ii) below; and
(ii) in the event of any decrease in the GNMA production rate, a GNMA bearing a stated rate of interest which was equal to the GNMA production rate (or any lower rate of interest which is not otherwise a qualifying rate) on the day prior to the date of any such decrease shall be deemed to continue to bear a qualifying rate for a period of 45 days from the date of such decrease or until the settlement date for options on GNMAs following the next expiration date for any series of such options, whichever shall last occur.
(48) Registered Options Principal

The term "Registered Options Principal" means a person who has qualified as a "Registered Options Principal" in accordance with Rule 720 (Registration of Options Principals).
(49) Registered Options Representative

The term "Registered Options Representative" means a registered representative who has qualified as a "Registered Options Representative" in accordance with paragraph (4) of Supplementary Material .15 to Rule 345 (Employees-Registration, Approval, Records).
(50) Related Security

The term "related security" means
(i) as used with reference to a Government security option, (A) all securities underlying Government security options, (B) futures contracts on such underlying security and (C) all options on such futures contracts,
(ii) as used with reference to a stock option, the underlying stock; and
(iii) as used with reference to an index stock group option, (A) all futures contracts on the underlying stock group or on any substantially identical index stock group, all option contracts on any substantially identical index stock group, and all options on such futures contracts and (B) also, in the case of an industry index stock group option only, all underlying stocks accounting for five percent or more of the current index group value of the underlying industry index stock group and all individual stock options on such underlying stocks.
(51) Rules of The Options Clearing Corporation

The term "rules of The Options Clearing Corporation" means the by-laws and the rules of The Options Clearing Corporation, and all written interpretations thereof, as the same may be in effect from time to time.
(52) Series (of Options)

The term "series (of options)" means all option contracts of the same class of options having the same expiration date, exercise price and unit of trading.
(52A) Shares

The term "shares" means the basic unit of issue of a stock.
(53) Short Position

The term "short position" means the number of outstanding option contracts of a given series of options with respect to which a person is obligated as a writer (seller).
(53A) Stock

The term "stock" shall be broadly interpreted to mean any equity security, as defined in Section 3(a)(11) of the Securities Exchange Act of 1934, as amended, and Rule 3a11-1 under the Act, that confers directly on the holder a present equity ownership or participation interest in an enterprise.
(54) Stock Option (Contract)

The term "stock option (contract)" means an option contract on a single stock.
(55) Stock-Related Option (Contract)

The term "stock-related option (contract)" means either a stock option contract, a broad industry index stock group option contract or an industry index stock group option contract.
(56) The Options Clearing Corporation

The term "The Options Clearing Corporation" means The Options Clearing Corporation, a subsidiary of the Participating Exchanges and Association.
(57) Treasury Bill

The term "Treasury bill" means a Government security sold by the U.S. Treasury Department at a discount from principal amount, bearing no interest and normally having a term to maturity of not more than one year at the time of original issue.
(58) Treasury Bond

The term "Treasury bond" means a Government security sold by the U.S. Treasury Department that has been designated by the U.S. Treasury Department with reference to its term to maturity as a "bond" (normally confined to Treasury securities with a term to maturity of more than ten years at the time of original issue).
(59) Treasury Note

The term "Treasury note" means a Government security sold by the U.S. Treasury Department that has been designated by the U.S. Treasury Department with reference to its term to maturity as a "note" (normally confined to Treasury securities with a term to maturity of more than one year but not more than ten years at the time of original issue).
(60) Type of Option

The term "type of option" means the classification of an option contract as either a put or a call.
(61) Uncovered

The term "uncovered" in respect of a short position in an option contract means that the short position is not covered.
(62) Underlying Government Security

The term "underlying Government security" means an underlying security that is a Government security.
(63) Underlying GNMA

The term "underlying GNMA" means an underlying security that is a GNMA.
(64) Underlying (Index) Stock Group

The term "underlying (index) stock group" as used with reference to an index stock group option contract means the index stock group, a multiple of the current index group value of which The Options Clearing Corporation is obligated to sell (in the case of a call) or purchase (in the case of a put) upon valid exercise of the contract.
(65) Underlying Security

The term "underlying security" means
(i) as used with reference to an option contract other than an index stock group option contract, the security which The Options Clearing Corporation is obligated to sell (in the case or a call) or purchase (in the case of a put) upon valid exercise of the contract, and
(ii) as used with reference to an index stock group option contract, any of the stocks included in the underlying index stock group.
(66) Underlying Stock

The term "underlying stock" means an underlying security that is a stock.
(c) References
(i) All contracts for the purchase or sale or writing of options contracts issued or issuable by The Options Clearing Corporation occurring on the Exchange, shall be made subject to the rules of the Exchange and of the by-laws and rules of The Options Clearing Corporation; and all such contracts shall be subject to the exercise by the Board of Directors and The Options Clearing Corporation of the powers with respect thereto vested in them by the rules of the Exchange and by the by-laws and rules of The Options Clearing Corporation.
(ii) Pursuant to Rule 3 (Security), option contracts (as defined above) are included within the definition of "security" or "securities" as such terms are used in the rules of the Exchange.
(d) Local Time

All times stated in the Rules in this 700 series are the local time in New York City.

• • • Supplementary Material: --------------

.10 For purposes of paragraph (b)(25) of this Rule, the current standard prospectus of the Department of Housing and Urban Development covering GNMAs shall be form HUD 1717.
.20 A determination of the current cash market price for purposes of calculating the appropriate differential pursuant to paragraph (b)(5) of this Rule shall be made immediately prior to the time The Options Clearing Corporation, in accordance with the rules of The Options Clearing Corporation, commences preparation of advice as to the aggregate exercise price of puts and calls on GNMAs which have been exercised.
Amendments.
October 7, 1982.
September 22, 1983.
February 17, 1984.
February 13, 1985.
April 10, 1985.
May 31, 1985.
March 8, 1990.
October 21, 1991.
February 5, 1993.
February 27, 2006, effective March 8, 2006 (NYSE-2005-77).

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