The Options Clearing Corporation

TO: ALL CLEARING MEMBERS
FROM: DAVID H. HARRISON – VICE PRESIDENT, MEMBER SERVICES
DATE: FEBRUARY 8, 2008
SUBJECT: EXPIRATION THRESHOLD REDUCTION

The Options Clearing Corporation (OCC) previously announced in Information Memo #23734 that The
OCC Board of Directors has approved and OCC has filed with the Securities Exchange Commission (SEC) a proposal to reduce the automatic expiration thresholds for equity options. OCC HAS RECEIVED APPROVAL FROM THE SECURITIES EXCHANGE COMMISSION (SEC) and will implement this change with the June 2008 Equity standard expiration, which is Saturday, June 21st 2008.
The change in the expiration thresholds are listed below:

Under the expiration procedures, options that are in the money at expiration equal to or more than the
specified threshold amount are exercised automatically unless the clearing member carrying the position
instructs OCC not to exercise. For equity options, the threshold amount will be reduced from $.05 to
$.01 for all account types.

For example, if a clearing member has an equity position which is in-the-money by $.02, the position
will be automatically exercised. However, if the clearing member does not want to exercise this
position, they must submit an expiring exercise declaration (EED) or an instruction not to exercise.

Background:

OCC’s long term goal is to process equity expiration on Friday evening. In order to accomplish this,
OCC must streamline the expiration process. Reducing the expiration thresholds for equity options will
be another step in achieving this goal.

Clearing Member Impact:

OCC is providing six months notification in order for clearing members to complete any development
changes or customer notification. Clearing members should check with their compliance department and review customer agreements to determine if they need to be re-filed to reflect the threshold reduction.

Note: The threshold reduction will not require any changes to the Options Disclosure Document
(ODD).

Contrary Intentions and EEDs

This change will also affect the threshold for contrary intentions submitted on the Friday before
expiration. Contrary intentions submitted to the exchanges or EEDs submitted via ENCORE are
required for any expiring exercise instruction that is contradictory to OCC’s automatic exercise
thresholds. Therefore, beginning with the June 2008 expiration, a contrary intention or EED would be
required in the following cases:

• Not exercising an equity option that was in-the-money by $.01 in the customer, firm and market
  maker accounts.
• Exercising an equity option that is at or out-of-the-money in the customer, firm and market
  maker accounts.

OCC will be making additional system changes to support the change to $.01 for expiration processing.
Additional information will be available at a later date.

ALL CLEARING MEMBERS ARE REQUESTED TO IMMEDIATELY ADVISE ALL BRANCH OFFICES AND OUT-OF-TOWN CORRESPONDENTS ON THE ABOVE.

Questions regarding this memo can be addressed to Member Services at (800) 544-6091. Within Canada call (800) 424-7320.