US ExchangE- TradEd OpTiOnS prOdUcT diSclOSUrE ... - CommSec

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U S E xc h a n g e -t r a d e d o p t i o n s
Corporate actions
When a listed security announces a corporate event that results in some form of capital
reconstruction, adjustments may be made to on one or more of the contract specifications
of any Options affected. Decisions about adjustments are made by an adjustment panel
consisting of representatives of the OCC and the Options markets on which an Option
series is traded. The aim is to maintain, as far as possible, the value of Option positions held
by takers and writers.
For example, if a company announced a two-for-one stock split, the adjustment panel might
adjust a $60 Call Option contract over the company’s shares by converting it to two $30
Call Option contracts.
Examples of corporate actions that could cause an adjustment
These actions could cause an
adjustment
• Special stock dividends or
distributions.
• Stock splits and reverse stock splits.
• Rights offerings.
• Reorganisations and recapitalisations.
• Mergers and consolidations.
• Dissolutions and liquidations.
These actions will generally
not cause an adjustment
• Ordinary stock dividends or
distributions.
• Ordinary cash dividends or
distributions.
• Tender offers or exchange offers.
• The issue of poison pill rights –
redeemable rights, not immediately
exercisable, designed to discourage a
takeover.
• Changes in capital structure which do
not convert publicly held securities into
another security, cash or other property.
For more information, refer to the OCC By-Laws, available from the OCC web site at www.
optionsclearing.com/publications/bylaws/bylaws.jsp
How an adjustment can affect your position
Features of an Options series which can be adjusted include:
• The number of contracts.
• The unit of trading.
• The exercise price.
• The underlying security.
The OCC publishes contract adjustment notices on its web site at
www.optionsclearing.com/market/infomemos/info_memos_form.jsp