The Commodity Futures Trading Commission has declined to approve a proposed rule amendment by the Options Clearing Corporation (OCC) that would have classified certain foreign currency exchange contracts with a nominal exercise price such as $0.01 as securities options. OCC contended in the submission that, other than the low strike price, the products were essentially the same as the cash-settled, foreign currency options currently cleared by OCC and, therefore, these products should be subject to the exclusive jurisdiction of the Securities and Exchange Commission, be traded on national securities exchanges and treated and cleared as securities options.

The CFTC rejected this analysis, however, and noted that, because the nominal strike price resulted in the products being deep in the money from inception, the option premium would be economically indistinguishable from the value of a futures contract on the underlying asset. The CFTC concluded that products are not bona fide options and therefore are subject to the Commodity Exchange Act and must be traded exclusively on a designated contract market or a derivatives transaction execution facility.

The denial notice from the CFTC can be found here.