(ii) Exchange-traded option; put option; call option. The options discussed in this disclosure statement are limited to those which may be traded on a contract market. These options (subject to certain exceptions) give an option purchaser the right to buy in the case of a call option, or to sell in the case of a put option, a futures contract or the physical commodity underlying the option at the stated strike price prior to the expiration date of the option. Each exchange-traded option is distinguished by the underlying futures contract or underlying physical commodity, strike price, expiration date, and whether the option is a put or a call.

(iii) Underlying futures contract. The futures contract which may be purchased or sold upon the exercise of an option on a futures contract.

(iv) Underlying physical commodity. The commodity of a specific grade (quality) and quantity which may be purchased or sold upon the exercise of an option on a physical commodity.

(v) Class of options. A put or a call covering the same underlying futures contract or underlying physical commodity.

(vi) Series of options. Options of the same class having the same strike price and expiration date.

(vii) Exercise price. See strike price. (viii) Expiration date. The last day when an option may be exercised.

(ix) Premium. The amount agreed upon between the purchaser and seller for the purchase or sale of a commodity option.

(x) Strike price. The price at which a person may purchase or sell the underlying futures contract or underlying physical commodity upon exercise of a commodity option. This term has the same meaning as the term "exercise price."

(xi) Short option position. See opening sale transaction.

(xii) Long option position. See opening purchase transaction.

(xiii) Types of options transactions— (A) Opening purchase transaction. A transaction in which an individual purchases an option and thereby obtains a long option position.

(B) Opening sale transaction. A transaction in which an individual

grants an option and thereby obtains a short option position.

(C) Closing purchase transaction. A transaction in which an individual with a short option position liquidates the position. This is accomplished by a closing purchase transaction for an option of the same series as the option previously granted. Such a transaction may be referred to as an offset transaction.

(D) Closing sale transaction. A transaction in which an individuale with a long option position liquidates the position. This is accomplished by a closing sale transaction for an option of the same series as the option previously purchased. Such a transaction may be referred to as an offset transaction.

(xiv) Purchase price. The total actual cost paid or to be paid, directly or indirectly, by a person to acquire a commodity option. This price includes all commissions and other fees, in addition to the option premium.

(xv) Grantor, writer, seller. An individual who sells an option. Such a person is said to have a short position.

(xvi) Purchaser. An individual who buys an option. Such a person is said to have a long position.

(c) Prior to the entry of the first commodity option transaction for the account of an option customer, a futures commission merchant or an introducing broker, or the person soliciting or accepting the order therefor, must provide an option customer with all of the information required under the disclosure statement, including the commissions, costs, fees and other charges to be incurred in connection with the commodity option transaction and all costs to be incurred by the option customer if the commodity option is exercised: Provided, That the futures commission merchant or the introducing broker, or the person soliciting or accepting the order therefor, must provide current information to an option customer if information provided previously has become inaccurate.

(d) Prior to the entry into a commodity option transaction on or subject to the rules of a contract market, each option customer or prospective

option customer shall, to the extent the following amounts are known or can reasonably be approximated, be informed by the person soliciting or accepting the order therefor of the amount of the strike price and the premium (and any mark-ups thereon, if applicable).

(e) A futures commission merchant and an introducing broker must establish the necessary procedures and supervision to ensure compliance with the requirements of this section.

(f) This section does not relieve a futures commission merchant or an introducing broker from any obligation under the Act or the regulations thereunder, including the obligation to disclose all material information to existing or prospective option customers even if the information is not specifically required by this section.

(g) For purposes of this section, neither a futures commission merchant nor an introducing broker shall be deemed to be an option customer.

(Approved by the Office of Management and Budget under control number 30380007)

[46 FR 54529, Nov. 3, 1981, as amended at 46 FR 63036, Dec. 30, 1981; 48 FR 35302, Aug. 3, 1983; 49 FR 44893, Nov. 13, 1984; 51 FR 17475, May 13, 1986]

§ 33.8 Promotional material.

Each futures commission merchant and each introducing broker shall retain, in accordance with § 1.31 of this chapter, all promotional material it provides, directly or indirectly, to option customers as well as the true source of authority for the information contained therein.

[48 FR 35303, Aug. 3, 1983]

§ 33.9 Unlawful activities.

It shall be unlawful for any person: (a) Required to be registered with the Commission in accordance with the Act or these regulations expressly or impliedly to represent that the Commission, by declaring effective the registration of such person or otherwise, has directly or indirectly approved such person, or any commodity option transaction solicited or accepted by such person;

(b) In or in connection with an offer to enter into, the entry into, the con

firmation of the execution of, or the maintenance of any commodity option transaction, expressly or impliedly to represent that compliance with the provisions of the Act or these regulations constitutes a guarantee of the fulfillment of the commodity option transaction;

(c) Upon acceptance of an order for a commodity option transaction, to fail unreasonably to secure prompt execution of such order or upon rejection of an order to fail to notify the person whose order has been rejected of such rejection;

(d) To manipulate or attempt to manipulate the market price of any commodity option on or subject to the rules of any contract market: Provided, however, That for purposes of this paragraph (d), any action taken by a contract market pursuant to a rule approved by the Commission or any emergency action which a contract market is permitted to take pursuant to the Act or these regulations shall not be deemed to be a manipulation; and

(e) Upon acceptance of an order for a commodity option transaction to bucket such order.

[46 FR 54529, Nov. 3, 1981; 46 FR 55925, Nov. 13, 1981]

§ 33.10 Fraud in connection with commodity option transactions.

It shall be unlawful for any person directly or indirectly:

(a) To cheat or defraud or attempt to cheat or defraud any other person; (b) To make or cause to be made to any other person any false report or statement thereof or cause to be entered for any person any false record thereof;

(c) To deceive or attempt to deceive any other person by any means what

soever

in or in connection with an offer to enter into, the entry into, the confirmation of the execution of, or the maintenance of, any commodity option transaction.

§ 33.11 Exemptions.

The Commission may, by order, upon written request or upon its own motion, exempt any person, either un

(c) ment.

Commodity-independent payment means any payment pursuant to a hybrid instrument that does not result from indexing to, or calculation by reference to, the price of a commodity.

(d) Commodity-dependent payment. payment

Commodity-dependent

means any payment pursuant to a hybrid instrument resulting from indexing to, or calculation by reference to, the price of a commodity.

(e) Commodity option based payment. Commodity option based payment means any commodity-dependent payment in which the commodity price indexing or referencing results in the indexing of payments for commodity prices either above or below the indexing reference price but not both.

(f) Implied option premium. Implied option premium means the issue price of a hybrid instrument with commodity based option payments less the present, or discounted, value of the commodity-independent payments. The discount rate to be used in deter

mining the present value is the actual, or if unavailable, the estimated annual yield at the time of issuance for a comparable non-hybrid debt, preferred equity or depository instrument of a similar term issued by the same or a comparable issuer.

§ 34.2 Option hybrid exemption.

(a) A hybrid instrument whose only commodity-dependent payments are commodity option based payments is exempt from regulation under the Commodity Exchange Act, except as provided in § 34.3 of this part, if:

(1) The instrument is:

(i) A security within the meaning of section 2(1) of the Securities Act of 1933 which is registered in accordance with section 5 of the Securities Act of 1933;

(ii) An exempt security under section 3(a)(3) or 3(a)(8) of the Securities Act of 1933;

(iii) An exempt security under section 3(a)(2) of the Securities Act of 1933 that is issued or guaranteed by the United States, any territory of the United States, the District of Columbia or any state of the United States, or any political subdivision or public instrumentality thereof; or a security issued or guaranteed as to principal or interest by any corporation the securities of which are designated, by statute specifically naming such corporation, to constitute exempt securities within the meaning of the laws administered by the Securities and Exchange Commission.

(iv) An exempt security under section 3(a)(2) or 3(a)(5) of the Securities Act of 1933 that is issued or guaranteed by a financial institution that is insured by a United States Government agency or United States chartered corporation; or an exempt security under section 3(a)(2) of the Securities Act of 1933 that is issued or guaranteed by a United States branch or agency of a foreign bank that is licensed under the laws of the United States and regulated, supervised and examined by United States government authorities having regulatory responsibility for such financial institutions.

(v) An exempt security under section 3(a)(2) of the Securities Act of 1933 that is issued by an insurance company;

(vi) A security that is offered and sold pursuant to an exempt transaction under section 4(2) of the Securities Act of 1933; or

(vii) A demand deposit, time deposit or transaction account within the meaning of 12 CFR 204.2 (b)(1), (c)(1) and (e), respectively, offered by a U.S. financial institution that is insured by a United States government agency or United States chartered corporation, or by a United States branch or agency of a foreign bank that is licensed under the laws of the United States and regulated, supervised and examined by U.S. federal authorities having regulatory responsibility for such financial institutions, and marketed and sold directly to a customer or through a broker registered in accordance with section 15 of the Securities Exchange Act of 1934 and applicable regulations;

(2) The value of the implied option premium is no greater than 40% of the issue price of the instrument;

(3) The issuer or instrument satisfies one of the following requirements:

(i) The instrument or, if the instrument has not been rated, another outstanding instrument of comparable seniority of the issuer has been rated in one of the four highest categories by a nationally recognized investment rating or financial rating organization; (ii) The issuer has at least $100 million in net worth;

(iii) The issuer maintains letters of credit or cover, consisting of:

(A) The physical commodity that is the subject of the hybrid instrument, (B) Futures, forward, or option contracts for the commodity, or

(C) Interests constituting acceptable cover under § 1.17(j), equal to the amount of its commitments to deliver, to take delivery of, or to pay the cash value of, the commodity (or a change in the price of the commodity) that is the subject of the commodity component of the instrument;

(iv) The instrument is eligible, subject to applicable restrictions upon the amount of coverage, to insurance by a

United States Government agency or United States chartered corporation;

(4) The instrument is not marketed as a futures contract or a commodity option, or, except to the extent necessary to describe the functioning of the instrument or to comply with applicable disclosure requirements, as having the characteristics of a futures contract or a commodity option;

(5) The instrument does not provide for settlement in the form of a delivery instrument, for example, an exchange-approved warehouse receipt or shipping certificate, specified in the rules of a designated contract market. (b) The Commission may, based upon written petition, grant such further exemptions with respect to hybrid instruments subject to this Section as it determines are not contrary to the public interest.

§ 34.3 Option hybrid notice requirement.

Where the price used for determining the settlement of the commoditydependent payments of an option hybrid instrument exempted pursuant to § 34.2 is based on prices reported on a designated contract market, the issuer shall provide the Commission in writing, within five business days of the effective date of the offering of the instrument:

(a) The name, address, and telephone number of the issuer and of a designated contact person for such issuer;

(b) The maturity date and authorized or expected size of the offering; and

(c) A copy of the prospectus, offering document or other written description of the instrument provided to actual or prospective purchasers thereof.

PART 100-DELIVERY PERIOD REQUIRED

AUTHORITY: Secs. 5a(4), 8a, 49 Stat. 1497, 1500; 7 U.S.C. 7a(4), 12a.

§ 100.1 Delivery period required with respect to certain grains.

A period of seven business days is required during which contracts for future delivery in the current delivery

140.23 General access requirements. 140.24 Control and accountability procedures.

140.61 Delegation of authority to the chief administrative law judge.

140.72 Delegation of authority to disclose confidential information to a contract market, registered futures association or self-regulatory organization.

140.73 Delegation of authority to disclose information to United States, State and foreign government agencies. 140.74 Delegation of authority to issue special calls for Series 03 Reports and Form 40.

140.75 Delegation of authority to the Director of the Division of Trading and Markets.

140.76 Delegation of authority to disclose information in a receivership or bankruptcy proceeding.

140.77 Delegation of authority to determine that applications for contract market designation are materially incomplete.

and other outside activity. 140.735-6 Negotiation for private employment.

140.735-7 Statement of financial interests and outside employment; certification of compliance.

140.735-8 Acceptance of things of value. 140.735-8A Receipt and disposition of foreign gifts and decorations.

140.735-9 Disclosure of information. 140.735-10 Practice by former members and employees of the Commission. 140.735-11 Action in case of personal interest.

140.735-12 Statutory provisions applicable to conduct of Commission members and employees.

140.735-13 Special Government employees. 140.735-14 Other standards of conduct. 140.735-15 Disciplinary and other remedial action.

140.735-16 Interpretative

service.

AUTHORITY: 17 U.S.C. 12a.

and advisory

Subpart A-Organization

§ 140.1 Headquarters office.

(a) General. The headquarters office of the Commission is located at 2033 K Street, NW., Washington, D.C. 20581. [48 FR 2734, Jan. 21, 1983]