[Federal Register Volume 77, Number 231 (Friday, November 30, 2012)]
[Notices]
[Pages 71466-71468]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-28944]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68288 File No. SR-OCC-2012-22]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change To Clarify the Use of Certain
Amounts Credited to the Liquidating Settlement Account To Settle Mark-
to-Market Payments Arising From Stock Loan and Borrow Positions Carried
in the Customers' Account
November 26, 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 November 13, 2012, 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
OCC proposes to make certain changes to Rule 1104 in order to
eliminate potential ambiguity as to OCC's right, in connection with the
suspension of a clearing member, to use
[[Page 71467]]
margin and other amounts credited to the Liquidating Settlement Account
pursuant to Rule 1104, to settle mark-to-market payments arising from
stock loan and borrow positions carried in the clearing member's
customers' account, notwithstanding that such payments are required by
OCC's Rules to be settled in the clearing member's firm account or its
combined market makers' account. In addition, OCC proposes to amend
Rule 1104 to provide that any proceeds from stock loan and borrow
positions carried in the customers' account could be applied only to
obligations arising in such account.
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 the proposed rule changes is to eliminate potential
ambiguity as to OCC's right to use margin and other amounts credited to
the Liquidating Settlement Account pursuant to Rule 1104 to settle
mark-to-market payments arising from stock loan and borrow positions
carried in the clearing member's customers' account even though such
payments are required by OCC's Rules to be settled in the clearing
member's firm account or its combined market makers' account. In
addition, a proposed amendment to Rule 1104 would provide that any
proceeds from stock loan and borrow positions carried in the customers'
account could be applied only to obligations arising in such account as
is the case with margin assets deposited in respect of that account.
Background
OCC's By-Laws currently provide that stock loan and borrow
positions (collectively, ``Stock Loan Positions'') may be carried at
OCC in any eligible account of a clearing member, including the firm,
market-maker, and customers' accounts. More specifically, under Section
5 of Articles XXI and XXIA of the By-Laws, and notwithstanding the
provisions of Section 3 of Article VI of the By-Laws (requiring
separation of firm and customer positions), clearing members have
discretion as to which Stock Loan Positions may be carried in which
eligible accounts, subject only to the clearing member's general
representations under Rules 2202(e) and 2202A(f) that the clearing
member's participation in the lending and borrowing activity is in
compliance with all applicable laws and regulations. However, Rules
2201(a) and 2201A(a) provide that a clearing member must designate
either its firm account or its combined market-makers' account as the
account to or from which all stock loan mark-to-market payments are to
be made, regardless of the account in which particular Stock Loan
Positions may be held.
Rule 1104 generally provides that, upon suspension of a clearing
member, OCC shall promptly liquidate, in the most orderly manner
practicable, all margins deposited with OCC by such clearing member in
all accounts (excluding securities held in a specific deposit or escrow
deposit) and all of such clearing member's contributions to the
clearing fund, subject to certain conditions. Under Rule 1104, in
general, these and all other funds of the suspended clearing member
subject to the control of OCC (except proceeds of segregated long
positions, funds disposed of pursuant to Rules 1105 through 1107, and
funds held in or payable to a segregated futures account) shall be
credited by OCC to a special account, to be known as the Liquidating
Settlement Account, in the name of the suspended clearing member, for
the purposes specified in Chapter 11.
Under Rule 1104, therefore, in general, proceeds of all margin
(other than margin held in segregated futures accounts) including
margin in a clearing member's securities customers' account, are
credited to the Liquidating Settlement Account. However, for purposes
of administration of the liquidation, the margin does not lose its
identity as being derived from the customers' account. Rules 2210 and
2210A (relating to the Stock Loan/Hedge Program and Market Loan
Program, respectively) provide that net proceeds from, or amounts due
in respect of, the termination of Stock Loan Positions shall be
credited to or withdrawn from the Liquidating Settlement Account. The
Liquidating Settlement Account will include any mark-to-market payments
received that day. In addition, Rule 1104 provides that the proceeds
from the liquidation of securities, or from drawing on letters of
credit, held as margin in a restricted lien account (such as the
customers' account) may be withdrawn and applied to the closing out of
pending transactions, open positions, and exercised or matured
contracts in such accounts pursuant to Rules 1105, 1106, and 1107,
respectively.\4\ To the extent that the proceeds derived from assets
maintained in accounts subject to OCC's restricted lien exceed the
proceeds used from such accounts for that purpose, such proceeds must
be remitted by the Corporation to the suspended clearing member or its
representative for distribution to the persons entitled thereto in
accordance with applicable law.
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\4\ The term ``restricted lien account'' is defined in Article
I, Section 1 of OCC's By-Laws as follows: ``any account of a
Clearing Member with the Corporation over which the Corporation has
a restricted lien with respect to specified assets (including any
proceeds thereof) in such account.'' The term ``restricted lien`` is
defined in Article I, Section 1 of OCC's By-Laws as follows: a
security interest of the Corporation in specified assets (including
any proceeds thereof) in an account of a Clearing Member with the
Corporation as security for the Clearing Member's obligations to the
Corporation arising from such account or, to the extent so provided
in the By-Laws or Rules, a specified group of accounts that includes
such account including, without limitation, obligations in respect
of all Exchange transactions effected through such account or group
of accounts, short positions maintained in such account or group of
accounts, and exercise notices assigned to such account or group of
accounts.''
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Description of Rule Change
For the avoidance of doubt, OCC proposes to insert an
interpretation indicating that when mark-to-market payments are owed
with respect to Stock Loan Positions maintained in a clearing member's
customers' account, proceeds of margin and unsegregated long positions,
and all other amounts credited to the Liquidating Settlement Account in
respect of the customers' account, may be used to satisfy the mark-to-
market obligations arising from the Stock Loan Positions in such
customers' account, even though such mark-to-market payments may settle
in the clearing member's firm account or its combined market makers'
account.
OCC's By-Laws clearly provide that Stock Loan Positions may be
included in the customers' account and that such positions will be
margined in that account along with positions in options and other
cleared contracts in the account. It would therefore be inconsistent to
conclude that margin required under OCC's Rules to be deposited in the
customers' account to margin Stock Loan Positions cannot be used to
settle mark-to-market payments
[[Page 71468]]
in respect of those positions if the clearing member is suspended. The
proposed rule changes are intended to eliminate any doubt in that
regard.
In addition, as noted above, the liquidation rules for Stock Loan
Positions in Rules 2210 and 2210A provide that any net proceeds of
closing out Stock Loan Positions shall be credited to the Liquidating
Settlement Account and that any net amounts payable in respect of such
close-outs may be withdrawn from such account. However, Rule 1104 as
currently drafted does not limit the use of proceeds of Stock Loan
Positions carried in a restricted lien account to obligations arising
from that restricted lien account as it does in the case of proceeds
from a restricted lien account that are credited pursuant to Rules 1105
through 1107. While such a restriction might be implied from the fact
that the Stock Loan Positions themselves are subject to a restricted
lien and not a general lien pursuant to Section 3(e) of Article VI of
the By-Laws, OCC believes that Rule 1104 should be amended to make this
restriction explicit. Because margin and other proceeds from a
restricted lien account that are credited to the Liquidating Settlement
Account may be applied to mark-to-market payments owed in respect of
Stock Loan Positions in the restricted lien account, any proceeds of
such positions should be subject to the same restriction applicable to
proceeds from other positions in the restricted lien account that are
credited to the Liquidating Settlement Account. They should be applied
only to obligations arising from that restricted lien account. OCC
therefore also proposes to amend Rule 1104 to include references to
Rules 2210 and 2210A to clearly provide that margin and other proceeds
from the customers' account that are credited to the Liquidating
Settlement Account may be applied to amounts payable with respect to
Stock Loan Positions in the customers' account and that proceeds from
Stock Loan Positions in such customers' account may be applied only to
obligations arising in that account.
OCC believes that the proposed changes are consistent with Section
17A of the Act, because they would help assure that the Rules of OCC
are designed to safeguard securities and funds which are in the custody
or control of the Corporation or for which it is responsible, and would
protect investors and the public interest by eliminating potential
ambiguity as to OCC's right, in connection with the suspension of a
clearing member, to use the collateral held in a clearing member's
customers' account to settle mark-to-market payments arising from Stock
Loan Positions carried in the clearing member's customers' account,
notwithstanding that such payments are required by OCC's Rules to be
settled in the clearing member's firm account or its combined market
makers' account. The proposed changes are not inconsistent with the
existing 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
No written comments were solicited or received with respect to the
proposed rule change.
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 email to rule-comments@sec.gov. Please include File Number
SR-OCC-2012-22 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-2012-22. 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 at http://www.optionsclearing.com/components/docs/legal/rules_and_bylaws/sr_occ_12_22.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-2012-22
and should be submitted on or before December 21, 2012.
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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-28944 Filed 11-29-12; 8:45 am]
BILLING CODE 8011-01-P