[Federal Register Volume 77, Number 187 (Wednesday, September 26, 2012)]
[Notices]
[Pages 59231-59233]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-23635]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67896; File No. SR-OCC-2012-17]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change Relating to the Margining of
Segregated Futures Customer Accounts on a Gross Basis
September 20, 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 September 14, 2012, The Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II 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 proposed rule change would allow OCC to become compliant with
Commodity Futures Trading Commission (``CFTC'') Rule 39.13(g)(8)(i)
which requires the margining of segregated futures customer accounts on
a gross basis.
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 such
statements.\3\
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\3\ The Commission has modified the text of the summaries
prepared by OCC.
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(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 provide for the
margining of OCC segregated futures customer accounts on a gross basis,
as required by CFTC Rule 39.13(g)(8)(i).\4\
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\4\ 17 CFR 39.13(g)(8)(i).
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The CFTC's Customer Gross Margin Rule
On October 18, 2011, the CFTC issued final regulations implementing
many of the new statutory core principles for CFTC-registered
derivatives clearing organizations (``DCOs'') enacted under the Dodd-
Frank Wall Street Reform and Consumer Protection Act (the ``Dodd-Frank
Act''). As a registered DCO (as well as a registered securities
clearing agency), OCC has previously implemented rule changes designed
to bring OCC into compliance with CFTC rules applicable to DCOs that
went into effect on January 9, 2012 \5\ and May 7, 2012.\6\ OCC
believes it is necessary to amend its Rules in order to ensure
compliance with the gross margin rule, which requires a DCO to
``collect initial margin on a gross basis for each clearing member's
customer account(s) equal to the sum of the initial margin amounts that
would be required by the derivatives clearing organization for each
individual customer within that account if each individual customer
were a clearing member.'' \7\ The gross margin rule goes into effect on
November 8, 2012, however, OCC intends to begin complying with the
gross margin rule on November 5, 2012 as described herein.
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\5\ See SR-OCC-2011-18.
\6\ See SR-OCC-2012-06.
\7\ Derivatives Clearing Organization General Provisions and
Core Principles, 76 FR 69334, 69439 (November 8, 2011).
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OCC's System for Calculating Margin
OCC currently calculates margin requirements for each clearing
member's segregated futures customer account held at OCC on a net basis
by applying OCC's System for Theoretical Analysis and Numerical
Simulations (``STANS''). STANS calculates margin with respect to each
account of a clearing member, including each clearing member's futures
customer account(s), on a net basis. STANS includes both a net asset
value (``NAV'') component and a risk component. The NAV component marks
all positions to market and nets long and short positions to determine
the NAV of each clearing member's portfolio of customer positions. The
NAV component represents the cost to liquidate the portfolio at current
prices by selling the net long positions and buying in the net short
positions. The risk component is estimated by means of an expected
shortfall risk measure obtained from ``Monte Carlo'' simulations
designed to measure the additional asset value required in any
portfolio to eliminate an unacceptable level of risk that the portfolio
would liquidate to a deficit.
OCC presently lacks sufficient information about individual
customer positions to calculate margin at the level of each individual
customer. However, OCC has been coordinating with other DCOs to
establish an industry-wide mechanism for complying with the customer
gross margin rule. Pursuant to this new system, each DCO's clearing
members will submit data files to the DCO identifying positions by
numerical customer identifiers.\8\ OCC will use this information to
calculate margins, using STANS, for each customer identifier of a
clearing member and to aggregate those margin calculations to determine
the total futures customer margin requirement for the clearing member's
segregated futures customer account(s) held at OCC.\9\ OCC will then
compare
[[Page 59232]]
the aggregate positions reported by each clearing member with its own
records and make any needed adjustments to the margin calculation to
ensure all positions on OCC's books are properly margined.
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\8\ The position data provided to OCC by clearing members will
not include (a) information with respect to the allocation of margin
assets to particular customers, nor (b) information with respect to
settlement obligations arising from the exercise, assignment or
maturity of cleared contracts. For this reason, OCC will treat all
margin assets and settlement obligations for each account to which
the gross margin rule applies as being in sub-accounts of the
Clearing Member. OCC will calculate margin, using STANS, separately
for each sub-account and will aggregate the calculated margin
requirements at the level of the clearing member's segregated
futures customer account to which the sub-accounts relate.
\9\ OCC currently carries the following account types that are
segregated pursuant to Section 4d of the Commodity Exchange Act:
Segregated Futures Accounts, Segregated Futures Professional
Accounts, non-Proprietary X-M accounts, and internal non-proprietary
cross-margining accounts. All such accounts would be margined on a
gross basis under the proposed amendments to Rule 601.
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Proposed By-Law and Rule Changes
The proposed changes to OCC's Rules provide for the calculation of
margin for segregated futures customer accounts on a gross basis and
mandate submission of the clearing member data files necessary to allow
OCC to calculate margin at the level of each futures customer. In the
event that the data included in these data files is incomplete (for
example, if OCC shows positions held in a clearing member's segregated
futures accounts, but those positions are not reflected in the data
file), OCC will create a separate sub-account to be used for margin
calculation purposes only. Positions recorded on OCC's books and
records, but not reflected in the data file, will be attributed to this
sub-account and a margin amount will be calculated for the sub-account.
This margin amount will be added to a clearing member's margin
requirement. OCC has determined to adopt this conservative approach to
dealing with discrepancies between its own records and clearing member
data files in order to ensure that OCC does not collect an inadequate
amount of margin from clearing members.
The proposed changes to OCC's By-Laws 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.
(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 not necessary or appropriate in furtherance of
the purposes of the Act.
(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.
OCC has also filed the proposed rule change as an advance notice
under Section 806(e)(1) of the Payment, Clearing, and Settlement
Supervision Act of 2010 (``Clearing Supervision Act'').\10\ The
proposed changes contained in the advance notice may be implemented
pursuant to Section 806(e)(1)(G) of Clearing Supervision Act \11\ if
the Commission does not object to the proposed changes within 60 days
of the later of (i) the date that the advance notice was filed with the
Commission or (ii) the date that any additional information requested
by the Commission is received. The clearing agency shall not implement
the proposed changes contained in the advance notice if the Commission
objects to the proposed changes.
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\10\ 12 U.S.C. 5465(e)(1).
\11\ 12 U.S.C 5465(e)(1)(G).
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The Commission may extend the period for review by an additional 60
days if the proposed changes raise novel or complex issues, subject to
the Commission providing the clearing agency with prompt written notice
of the extension. Proposed changes may be implemented in fewer than 60
days from the date the advance notice is filed, or the date further
information requested by the Commission is received, if the Commission
notifies the clearing agency in writing that it does not object to the
proposed changes and authorizes the clearing agency to implement the
proposed changes on an earlier date, subject to any conditions imposed
by the Commission.
The proposals contained in the proposed rule change and advance
notice shall not take effect until all regulatory actions required with
respect to the proposals are completed. The clearing agency shall post
notice on its web site of proposed changes that are implemented.
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 Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml) or
Send an email to [email protected]. Please include
File Number SR-OCC-2012-17 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-2012-17. 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 Section, 100 F Street
NE., Washington, DC 20549, on official business days between the hours
of 10:00 a.m. and 3:00 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 (http://www.optionsclearing.com/components/docs/legal/rules_and_bylaws/sr_occ_12_17.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-2012-17
and should be submitted on or before October 17, 2012.
[[Page 59233]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-23635 Filed 9-25-12; 8:45 am]
BILLING CODE 8011-01-P