[Federal Register Volume 76, Number 181 (Monday, September 19, 2011)]
[Notices]
[Pages 58061-58063]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-23976]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65338; File No. SR-OCC-2011-12]
Self-Regulatory Organizations; Options Clearing Corporation;
Notice of Filing of Proposed Rule Change To Adopt Fitness Standards for
Directors, Clearing Members, and Others
September 14, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder \2\ notice is hereby given that
on August 31, 2011, The Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared primarily by OCC. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The purpose of the proposed rule change is to establish fitness
standards for directors, clearing members, and others.
[[Page 58062]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. OCC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The purpose of this proposed rule change is to facilitate
compliance by OCC with new core principles (``Core Principles'')
applicable to derivatives clearing organizations (``DCOs'') that are
set forth in the CEA, as amended by the Dodd-Frank Act. In particular,
new DCO Core Principle O requires DCOs to establish fitness standards
for directors, clearing members and certain other individuals.
Background
The Core Principles for DCOs are set forth in the CEA and consist
of a number of governing principles to which a DCO is required to
adhere. OCC is registered as a DCO with the Commodity Futures Trading
Commission (the ``CFTC'') under Section 5b of the CEA, and clears
commodity futures and commodity options traded on five futures
exchanges subject to the CFTC's jurisdiction. Title VII of the Dodd-
Frank Act amended the CEA to expand existing Core Principles and to add
certain new Core Principles. The applicable Dodd-Frank amendments to
the CEA become effective July 16, 2011. In January 2011, the CFTC
published proposed rules (the ``Proposed Rules'') to implement the Core
Principles, as amended and expanded by the Dodd Frank Act. The Proposed
Rules propose certain minimum criteria for complying with the Core
Principles, and propose certain clarifications of the more ambiguous
provisions of the Core Principles. The Proposed Rules have not been
adopted and will not be effective until 60 days following the date on
which the CFTC publishes final rules implementing the Core Principles.
Core Principle O provides that each DCO must: (i) Establish
governance arrangements that are transparent (I) to fulfill public
interest requirements and (II) to permit the consideration of the views
of both owners and participants, and (ii) establish and enforce
appropriate fitness standards for (I) directors, (II) members of any
disciplinary committee, (III) members of the DCO, (IV) any other
individual or entity with direct access to the settlement or clearing
activities of the DCO, and (V) any party affiliated with any of the
above. OCC's existing governance arrangements satisfy the transparency
requirements of subparagraph (i) of Core Principle O. OCC is proposing
to adopt the Fitness Standards in order to assure compliance with
subparagraph (ii) of Core Principle O.
Description of Proposed Fitness Standards
The proposed Fitness Standards, which are attached as Exhibit 5 to
this rule filing, comply with Core Principle O by establishing minimum
standards for directors and clearing members, as well as affiliates of
such directors and clearing members.\3\ The proposed Fitness Standards
are generally similar to fitness standards adopted by the Depository
Trust and Clearing Corporation.
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\3\ Pursuant to a conversation among OCC, the Commission and the
CFTC, the CFTC has indicated that the proposed rule change may
become effective after July 16, 2011 without impacting OCC's status
as a DCO.
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The Fitness Standards incorporate the Proposed Rule's minimum
fitness standards for directors and clearing members, including the
basis for refusal to register a person under Section 8a(2) of the CEA
and, for directors only, the absence of a significant history of
serious disciplinary offences, such as those that would be
disqualifying under Section 1.63 of the CFTC's regulations. The Fitness
Standards do not establish criteria for members of the disciplinary
committee or for persons ``with direct access to the settlement or
clearing activities'' of OCC (``Access Persons''). In OCC's case, all
members of disciplinary committees\4\ are directors of the Corporation
and will be subject to the Fitness Standards as such. With respect to
Access Persons, neither the CEA nor the Proposed Rules provide any
explicit guidance as to the persons intended to be included in the
phrase ``any other individual or entity with direct access to the
settlement or clearing activities of the [DCO].'' Similarly, the term
``direct access'' is not defined in the CEA or the Proposed Rules.
However, Core Principle O is closely modeled on existing designated
contract market (``DCM'') Core Principle 14, which also requires that
fitness standards be established for directors, members and ``any other
persons with direct access to the facility.'' The CFTC has previously
issued guidance on DCM Core Principle 14 and interpreted ``persons with
direct access to the facility'' to include ``non-member market
participants who are not intermediated and do not have [member]
privileges, obligations, responsibilities or disciplinary authority.''
This interpretation suggests that ``access'' is intended to mean the
type of access that a member would have. OCC believes that by analogy
``persons with direct access to the settlement or clearing activities''
of a DCO, as used in Core Principle O, is intended to refer to persons
with access to submit transactions for clearing or to give instructions
to OCC regarding accounts or transactions or otherwise have access to
the clearing system in a manner similar to the access that a Clearing
Member would have. OCC also does not read ``any other individual or
entity with direct access to the settlement or clearing activities of
the [DCO]'' to include OCC employees or service providers such as
settlement banks. Accordingly, OCC believes that there are presently no
persons with ``direct access'' to the settlement and clearing
activities of OCC other than clearing members.
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\4\ OCC has no standing disciplinary committee. Disciplinary
committees are formed on an ad hoc basis. See OCC Rule 1202(a).
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Proposed By-Law Changes
Article III (Board of Directors) and Article V (Clearing Members)
set forth qualifications for directors and clearing members,
respectively. The Interpretations and Policies under the appropriate
sections of both Articles are being amended to incorporate the
applicable Fitness Standards by reference.
OCC believes that the proposed changes to its By-Laws and Rules are
consistent with the purposes and requirements of Section 17A of the
Exchange Act, because they are designed to permit OCC to perform
clearing services for products that are subject to the jurisdiction of
the CFTC without adversely affecting OCC's obligations with respect to
the prompt and accurate clearance and settlement of securities
transactions or the protection of securities investors and the public
interest. The proposed rule change is not inconsistent with any rules
of OCC.
[[Page 58063]]
(B) Self-Regulatory Organization's Statement on Burden on Competition
OCC does not believe that the proposed rule change would impose any
burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
Written comments were not and are not intended to be solicited with
respect to the proposed rule change and none have been received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commissions Internet comment form (http://www.sec.gov/rules/sro.shtml) or send an e-mail to [email protected]. Please include File Number SR-OCC-2011-12 on the
subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2011-12. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml.) Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Section, 100 F Street,
NE., Washington, DC 20549, on official business days between the hours
of 10 a.m. and 3 p.m. Copies of such filings will also be available for
inspection and copying at the principal office of OCC and on OCC's Web
site at http://www.optionsclearing.com/components/docs/legal/rules_and_bylaws/sr_occ_11_12.pdf.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-OCC-2011-12
and should be submitted on or before October 11, 2011.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-23976 Filed 9-16-11; 8:45 am]
BILLING CODE 8011-01-P