Rule 780. Exercise of Option Contracts
This rule is no longer applicable effective February 17, 2009.
Exercise Cut-Off Time for Expiring Equity Options
Final Decisions
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
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.
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.
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 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 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.
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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. |