Options Corp. Refines Rules for Contract Adjustments
Published Date: 12/17/2025
Notice
Summary
The Options Clearing Corporation (OCC) is updating its rules on how options contracts get adjusted, making things clearer and more organized. This change affects traders and firms using OCC’s services, aiming to keep contract adjustments smooth and fair. The SEC gave a thumbs-up quickly, so these updates will roll out soon without any extra costs for users.
Analyzed Economic Effects
5 provisions identified: 2 benefits, 2 costs, 1 mixed.
Adjustments Include Foreign Withholding Tax
OCC will generally make contract adjustments net of any relevant foreign withholding taxes under proposed Rule 2803(l), except where local tax authorities issue rulings that exempt groups and OCC reasonably believes U.S. investors can be included. OCC also says it will investigate withholding information on foreign securities and take that into account when available.
Small Cash Dividends Below $0.125 Not Adjusted
OCC continues its practice (codified in Rule 2803(c)(2)) of generally not making adjustments for cash dividends or distributions that are less than $0.125 per share for stock option contracts. OCC also states that this general rule does not apply to cash paid in lieu of fractional share entitlements.
Cash-in-Lieu Aligns With DTC Practice
Under proposed Rule 2803(k), when an adjusted deliverable includes cash in lieu of fractional shares, OCC will generally align its cash-in-lieu amounts with determinations made by the central securities depository clearing agency (e.g., the Depository Trust Company), though OCC may in rare cases independently determine a cash-in-lieu price.
OCC May Set Cash Value When Delays Likely
Proposed Rule 2803(j) explicitly permits OCC to determine the cash value of distributed property in adjustments, including in circumstances where the final amount or distribution may not be determinable for a long period, so that timely settlement can occur.
Deliverable for Election Mergers Clarified
Proposed Rule 2803(i) states that in election mergers or similar shareholder-election events, the adjusted deliverable will generally be based on the consideration accruing to a non‑electing shareholder if OCC determines it can readily facilitate delivery of that consideration, making explicit prior practice.
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