[Federal Register Volume 77, Number 5 (Monday, January 9, 2012)]
[Notices]
[Pages 1116-1119]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-96]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66081; File No. SR-OCC-2011-18]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change Relating to DCO 60 Day Regulations
January 3, 2012.
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 December 20, 2011, Options Clearing Corporation (``OCC'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change described in Items I and II below, which items have been
prepared primarily by OCC. The Commission is publishing this Notice and
Order to solicit comments on the proposed rule change from interested
persons and to approve the proposed rule change on an accelerated
basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of Terms of Substance of
the Proposed Rule Change
The Options Clearing Corporation (``OCC'' or the ``Corporation'')
proposes to amend its By-Laws and Rules as set forth below in order to
ensure OCC's technical compliance with final regulations promulgated by
the Commodity Futures Trading Commission (``CFTC'') applicable to
derivatives clearing organizations (``DCOs''). Material proposed to be
added to OCC's By-Laws and Rules as currently in effect is italicized
and material proposed to be deleted is enclosed in bold brackets.
THE OPTIONS CLEARING CORPORATION
BY-LAWS
* * * * *
ARTICLE VI
CLEARANCE OF EXCHANGE TRANSACTIONS
* * * * *
General Clearance Rule
SECTION 1. [no change]
...Interpretations and Policies
.01-.02 [no change]
.03 (a) Except as otherwise provided in the By-Laws or Rules
(including Chapter XI thereof), the Corporation will promptly transfer
all or any portion of a carrying Clearing Member's segregated futures
customer account maintained in accordance with Section 3(f) of this
Article VI or segregated futures professional account maintained in
accordance with Section 3(j) of this Article VI, and will, at the same
time, transfer related funds (if any) upon the request of the carrying
Clearing Member and the confirmation of the receiving Clearing Member
that it will accept such transfer, provided that the request for
transfer and confirmation of transfer are received by the Corporation
in accordance with the procedures and within such timeframes as
required by the Corporation.
(b) Any transfer effected pursuant to this Interpretation and
Policy .03 shall be subject to such policies and procedures as the
Corporation determines are reasonably necessary for the protection of
the Corporation, other Clearing Members, customers and the general
public and the Corporation may refuse any transfer request that does
not comply with such policies and procedures.
(c) Any carrying Clearing Member requesting a transfer pursuant to
this Interpretation and Policy .03 shall be deemed to have represented
to the Corporation that: (1) such transfer is being made upon the
instruction of the customer of the carrying Clearing Member to make
such transfer, (2) the customer instructing the carrying Clearing
Member to transfer its positions is not currently in default to the
carrying
[[Page 1117]]
Clearing Member, and (3) any remaining positions of the customer will
have appropriate margin at the carrying Clearing Member.
(d) Any receiving Clearing Member consenting to a transfer of
positions in accordance with Interpretation and Policy .03 shall be
deemed to have represented to the Corporation that the transferred
positions will have appropriate margin at the receiving Clearing
Member.
(e) No transfer of positions between Clearing Members pursuant to
this Interpretation and Policy .03 shall require the close-out or re-
booking of the positions.
(f) The Corporation may refuse to effect a transfer pursuant to
this Interpretation and Policy .03 if doing so would result in any
account of the carrying or receiving Clearing Member having margin
assets less than the Corporation deems necessary.
(g) Any transfer effected pursuant to this Interpretation and
Policy .03 shall be deemed to have been completed at such time as (1)
position reports provided to the receiving Clearing Member indicate
that the transferred position(s) is/are in the appropriate account of
the receiving Clearing Member and (2) the transfer of any related funds
has been finalized.
RULES
* * * * *
CHAPTER VI
MARGINS
* * * * *
Form of Margin Assets
RULE 604. (a)-(c) [no change]
(d) Funds and securities held by or subject to the instructions of
the Corporation as margin shall, subject to the rights of the
Corporation in respect thereof, remain the property of the respective
Clearing Members for whose accounts such funds and securities are held.
Funds and securities deposited in respect of a segregated futures
account shall be held in accordance with the provisions of Section 4d
of the Commodity Exchange Act and regulations thereunder. All other
funds held by the Corporation as margin (other than funds invested by
the Corporation pursuant to subsection (a) of this Rule and funds
credited by the Corporation to a Liquidating Settlement Account
pursuant to Chapter XI) shall be deposited to the credit of the
Corporation in an account or accounts, designated as Clearing Member
[lsqbb]trust[rsqbb] margin accounts, with such banks, trust companies
or other depositories as the Board of Directors may select. Such funds
shall not be commingled with funds of the Corporation or used by the
Corporation as working capital. To the extent that funds held by the
Corporation as margin are invested by the Corporation in securities
pursuant to subsection (a) of this Rule, the Corporation shall maintain
records clearly identifying such securities as held in trust for
Clearing Members. The Corporation shall have the right to commingle
funds and securities held as margin for the account of any Clearing
Member with funds and securities held as margin for other Clearing
Members.
(e)-(f) [no change]
* * * * *
CHAPTER XI
SUSPENSION OF A CLEARING MEMBER
* * * * *
Notice to Corporation
Rule 1101. A Clearing Member that is unable to meet its obligations,
[lsqbb]or[rsqbb] is insolvent, or becomes the subject of a bankruptcy
petition, receivership proceeding, or the equivalent shall immediately
notify the Corporation by telephone of such event [lsqbb]that it is
unable to meet its obligations or is insolvent[rsqbb]. Such notice
shall be confirmed in writing promptly by said Clearing Member.
Suspension
Rule 1102. (a) The Board of Directors or the Chairman of the
Corporation may summarily suspend any Clearing Member which: (i) has
been and is expelled or suspended from any self-regulatory organization
(as defined in Section 3(a) of the Securities Exchange Act of 1934, as
amended, but not including the Municipal Securities Rulemaking Board,
or as defined in the rules of the Commodity Futures Trading
Commission); (ii) [lsqbb]is in default of[rsqbb] fails to make any
delivery of [lsqbb]funds or[rsqbb] cash, securities or other property
to the Corporation in a timely manner as required by the By-Laws or
Rules; (iii) [lsqbb]is in default of[rsqbb] fails to make any delivery
of funds or securities to another Clearing Member required pursuant to
the By-Laws or Rules; (iv) [lsqbb]is in default of[rsqbb] fails to make
any delivery of funds or securities to the correspondent clearing
corporation in a timely manner, has appointed an Appointed Clearing
Member to act on its behalf and such Appointed Clearing Member
[lsqbb]is in default of[rsqbb] fails to make any delivery of funds or
securities to the correspondent clearing corporation in a timely manner
or effects settlement at the correspondent clearing corporation through
an identifiable subaccount in an account of CDS at the correspondent
clearing corporation and CDS [lsqbb]is in default of[rsqbb] fails to
make any delivery of funds or securities to the correspondent clearing
corporation in a timely manner; (v) is in such financial or operating
difficulty that the Board of Directors or the Chairman of the
Corporation determines and so notifies the appropriate regulatory
agency for such Clearing Member (or, in the case of a Non-U.S. Clearing
Member, the appropriate Non-U.S. Regulatory Agency) and the Securities
and Exchange Commission or the Commodity Futures Trading Commission
that suspension is necessary for the protection of the Corporation,
other Clearing Members, or the general public; or (vi) in the case of a
Non-U.S. Clearing Member, has been and is expelled or suspended by its
Non-U.S. Regulatory Agency or any securities exchange or clearing
organization of which it is a member. In addition, the Corporation may
summarily suspend any Clearing Member in accordance with Rule 707. In
the event that any Clearing Member is suspended, the Corporation shall
cease to act for it except as hereinafter specified.
(b) [no change]
... Interpretations and Policies
.01 The occurrence of any of the events described in Rule 1102 shall
constitute an event of ``default'' with respect to a Clearing Member.
Creation of Liquidating Settlement Account
Rule 1104
(a)-(d) [no change]
(e) For the avoidance of doubt, any margin assets in the firm lien
account of a Clearing Member that has been suspended pursuant to Rule
1102 may be applied to cover losses with respect to such Clearing
Member's segregated futures account(s) if the assets in such segregated
futures accounts are insufficient to cover a shortfall in such
accounts.
(f) For the avoidance of doubt, nothing in this Chapter XI or in
any other provision of the By-Laws or Rules of the Corporation shall
prevent the Corporation from transferring positions, cash, securities
or other property carried in a segregated futures account of a
defaulting Clearing Member to a non-defaulting Clearing Member at the
direction of or with the consent of the transferring Clearing Member's
[[Page 1118]]
representative or pursuant to an order of a court of competent
jurisdiction.
* * * * *
II. Self-Regulatory Organization's Statement of Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, OCC included statements
concerning the purpose 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 III below. OCC has prepared summaries, set forth in sections A, B,
and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of Purpose of, and
Statutory Basis for, the Proposed Rule Change
The purpose of the proposed changes to OCC's By-Laws and Rules is
to ensure technical compliance with final regulations of the Commodity
Futures Trading Commission (``CFTC'') applicable to derivatives
clearing organizations (``DCOs'') that become effective on January 9,
2012. The CFTC's final regulations implement many of the core
principles applicable to DCOs under the Commodity Exchange Act.
The Final DCO Regulations
On October 18, 2011, the CFTC held an open meeting at which it
issued final regulations implementing many of the new statutory core
principles for DCOs enacted under the Dodd-Frank Act. While certain of
these final regulations go into effect on May 7, 2012 and November 8,
2012, the majority of the final regulations go into effect on January
9, 2012. While OCC is already in compliance with most of the final
regulations that go into effect on January 9, 2012, OCC believes it
appropriate to clarify certain of its rules to ensure technical
compliance with the CFTC's rules as described herein.
Safekeeping of Funds
CFTC Rule 39.15(c) requires each DCO to ``hold funds and assets
belonging to clearing members and their customers in a manner which
minimizes the risk of loss or of delay in the access by the derivatives
clearing organization to such funds and assets.'' OCC Rule 604(d)
provides that funds held by OCC as margin, other than funds and
securities deposited in a segregated futures account, funds invested by
OCC under Rule 604(a) and funds credited by OCC to a liquidating
settlement account ``shall be deposited to the credit of the
Corporation in an account or accounts, designated as Clearing Member
trust accounts, with such banks, trust companies or other depositories
as the Board of Directors may select.'' The designation of such
accounts as ``trust accounts'' was originally intended to clarify that
funds and securities held as margin remain the property of the
depositing clearing member, subject to OCC's security interest in such
assets, and that those assets, unlike clearing fund deposits, cannot be
applied to defaults of other clearing members. However, as the term
``trust'' could potentially cause uncertainty and delay in obtaining
the release of these assets to OCC, OCC is amending Rule 604(d) to
replace the word ``trust'' with the word ``margin.''
Transfer of Customer Positions
CFTC Rule 39.15(d) requires a DCO to have ``rules providing that
the derivatives clearing organization will promptly transfer all or a
portion of a customer's portfolio of positions and related funds at the
same time from the carrying clearing member of the derivatives clearing
organization to another clearing member of the derivatives clearing
organization, without requiring the close-out and re-booking of the
positions prior to the requested transfer, subject to the following
conditions: (1) The customer has instructed the carrying clearing
member to make the transfer; (2) The customer is not currently in
default to the carrying clearing member; (3) The transferred positions
will have appropriate margin at the receiving clearing member; (4) Any
remaining positions will have appropriate margin at the carrying
clearing member; and (5) The receiving clearing member has consented to
the transfer.'' Although OCC Interpretation and Policy .01(a) currently
provides that ``it is the policy of the Corporation to permit a
Clearing Member to submit adjustments to its positions with the
Corporation to (1) effect a transfer of accounts between Clearing
Members,'' no provision of OCC's bylaws or rules specifically addresses
the technical requirements of CFTC Rule 39.15(d) with respect to
futures customer positions. In order to avoid any doubt about OCC's
compliance with this rule, OCC is proposing to add an additional
Interpretation and Policy .03 to Section 1 of Article VI of its By-Laws
to address the technical requirements of the referenced CFTC Rule.
CFTC Rule 39.16(c)(2) requires each DCO to ``adopt rules that set
forth its default procedures, including * * * (i) [t]he derivatives
clearing organization's definition of a default [and] (ii) [t]he
actions that the derivatives clearing organization may take upon a
default, which shall include the prompt transfer, liquidation, or
hedging of the customer or house positions of the defaulting clearing
member, as applicable.'' Although OCC Rule 1102(a) provides a list of
the grounds for suspension of a clearing member, those grounds are not
expressly referred to as events of ``default,'' and OCC's By-Laws and
Rules do not define the term ``default.'' OCC is therefore proposing to
amend Rule 1102 to remove the word ``default'' from such rule and
replace it with substantive provisions indicating the specific grounds
for suspension of a clearing member, as well as to adopt a new
Interpretation and Policy .01 that would expressly define the events
listed in Rule 1102 as events of ``default'' with respect to a Clearing
Member. In addition, OCC is proposing to add a new Rule 1104(f) to
expressly provide that customer positions may be transferred in the
event of a clearing member default.
Use of House Funds To Cover Customer Defaults
CFTC Rule 39.16(c)(2)(vi) requires each DCO to adopt rules
including a ``provision that the excess house funds and assets of a
defaulting clearing member shall be applied to cover losses with
respect to a customer default, if the relevant customer funds and
assets are insufficient to cover the shortfall.'' While it is true that
assets of a clearing member in a clearing member's firm lien account
may be so applied under OCC's existing By-Laws and Rules, there is no
provision in OCC's Rules relating to the liquidation of a suspended
clearing member that specifically mirrors the language of CFTC Rule
39.16(c)(2)(vi). OCC is therefore adding a new paragraph (e) to Rule
1104 to more closely track the requirement of the CFTC rule.
Notice of Clearing Member Insolvency
CFTC Rule 39.16(d) requires each DCO to ``adopt rules that require
a clearing member to provide prompt notice to the derivatives clearing
organization if it becomes the subject of a bankruptcy petition,
receivership proceeding, or the equivalent.'' Although OCC Rule 1101
requires a clearing member that is ``unable to meet its obligations or
is insolvent [to] immediately notify the Corporation,'' it is possible
for a clearing member to become the subject of a bankruptcy petition
without being unable to meet its obligations or actually being
insolvent. OCC is therefore proposing to amend Rule 1101 to require a
clearing member to notify OCC if the clearing
[[Page 1119]]
member is the subject of a bankruptcy, receivership or equivalent
proceeding.
* * *
The proposed changes are consistent with Section 17A of the
Securities Exchange Act of 1934, as amended, because they are designed
to permit OCC to perform clearing services for certain 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. In addition, as a CFTC-registered
DCO, OCC is required to comply with the CFTC's core principles
applicable to DCOs. The proposed rule change is not inconsistent with
any rules of OCC.
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. 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 may be submitted by using the
Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml), or send an email to rule-comments@sec.gov. Please include
File No. SR-OCC-2011-18 on the subject line.
Paper comments should be sent 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-2011-18. This file
number should be included on the subject line if email 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 Room, 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 filing also will be available for
inspection and copying at the principal office of OCC. 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-2011-18 and should be
submitted on or before January 30, 2012.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
In its filing, OCC requested that the Commission approve this
request on an accelerated basis for good cause shown. OCC cites the
reason for granting this request on an accelerated basis as OCC's
operations as a DCO, subject to regulation by the CFTC under the CEA
and that these rule changes are being made according to regulations
promulgated by the CFTC, which were previously subject to notice and
comment. Not approving this request on an accelerated basis will have a
significant impact on OCC's operations as a DCO.
Section 19(b) of the Act \3\ directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule change is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to such
organization. The Commission finds that the proposed rule change is
consistent with the requirements of the Act, in particular the
requirements of Section 17A of the Act,\4\ and the rules and
regulations thereunder applicable to OCC. Specifically, the Commission
finds that the proposed rule change is consistent with Section
17A(b)(3)(F) of the Act which requires, among other things, that the
rules of a clearing agency be designed to promote the prompt and
accurate clearance and settlement of derivative agreements, contracts,
and transactions because it should allow OCC to comply with new CFTC
regulatory requirements, thereby promoting the prompt and accurate
clearance and settlement of derivative agreements, contracts, and
transactions.\5\
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78s(b).
\4\ 15 U.S.C. 78q-1. In approving this proposed rule change, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
\5\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\6\ for approving the proposed rule change prior to the 30th
day after the date of publication of notice in the Federal Register
because as a registered DCO OCC is required to comply with the new CFTC
regulations by the time they become effective on January 9, 2012.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-OCC-2011-18) is approved on an
accelerated basis.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\7\
---------------------------------------------------------------------------
\7\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-96 Filed 1-6-12; 8:45 am]
BILLING CODE 8011-01-P