[Federal Register Volume 78, Number 99 (Wednesday, May 22, 2013)]
[Notices]
[Pages 30364-30365]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-12165]
[[Page 30364]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69595; File No. SR-OCC-2013-06]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Accommodate the Use of Vault Receipts or Warehouse Depository Receipts
in Electronic Form, Rather Than Vault Receipts or Warehouse Depository
Receipts in Physical Form, To Represent the Metals Underlying
Physically-Settled Futures Contracts on Metals Traded by NYSE Liffe US
LLC
May 16, 2013.
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 May 13, 2013, 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 by the clearing agency. OCC filed the proposed rule change
pursuant to Section 19(b)(3)(A)(i) of the Act \3\ and Rule 19b(4)(f)(1)
thereunder \4\ so that the proposal was effective upon filing with the
Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(i).
\4\ 17 CFR 240.19b-4(f)(1).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
OCC proposes to accommodate the use of vault receipts or warehouse
depository receipts in electronic form (``electronic receipts''),
rather than vault receipts or warehouse depository receipts in physical
form, to represent the metals underlying physically-settled futures
contracts on metals (``Precious Metals Futures'') traded by NYSE Liffe
US LLC (``NYSE Liffe US'').
II. Clearing Agency'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.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
The primary purpose of this proposed rule change is to revise OCC's
Rules (the ``Rules'') to accommodate NYSE Liffe US's transition to
using electronic receipts, rather than vault receipts or warehouse
depository receipts in physical form, to represent the metals
underlying Precious Metals Futures. To make this accommodation, OCC
proposes to revise its Rules regarding the delivery of the metals
underlying such futures contracts to provide that the vault receipts
used to facilitate settlement can be held in either electronic or
physical form during a transition period and, after such transition
period expires, must be in electronic form. In addition, the proposed
Rules clarify that the warehouse depository receipts created by NYSE
Liffe US represent a proportional interest in a specified pool of the
vault receipts held by NYSE Liffe US for contracts such as 100 oz. gold
futures and 5,000 oz. silver futures. Such warehouse depository
receipts shall be used in the settlement of mini-sized gold and silver
futures and shall, in all cases, be in electronic form. The proposed
Rules also clarify that vault receipts that are subject to third party
liens or encumbrances are not eligible to be delivered to settle
obligations pertaining to Precious Metals Futures.
In the event of a default or insolvency by either the delivering or
receiving Clearing Member with respect to a Precious Metals Futures
contract, OCC is required to pay damages to the non-defaulting Clearing
Member. The amount of damages is determined by OCC, taking into account
the delivery payment amount for the applicable Precious Metals Futures
contract, the market price of the underlying interest, market
conditions generally and reasonable and customary transaction costs
applicable to transactions in the underlying interest. As a means of
allowing OCC to complete delivery of the underlying precious metals
owed by, or recover the amount of damages from, the defaulting Clearing
Member, the proposed Rules authorize OCC to maintain a perfected
security interest, or lien, in the vault receipts tendered for delivery
during the delivery process. This lien will be automatically released
at 10:00 a.m. Central Time on the related delivery date unless by such
time OCC provides NYSE Liffe US with a notification that there was a
default by the delivering Clearing Member, thereby keeping the lien in
place. OCC intends to perfect its security interest in three ways: (a)
By control; (b) by possession through a bailee; and (c) by filing
financing statements.
Perfection by Control
Revised Article 7 of the Uniform Commercial Code (``UCC'') permits
a secured party with a security interest in an electronic document of
title to perfect that security interest by ``control.'' Revised Article
7 of the UCC is in effect in Illinois, but not in New York. OCC
believes that certain procedures undertaken by NYSE Liffe US through
its electronic delivery system, as detailed in the Amended and Restated
Clearing Agreement (which is governed by the law of the state of
Illinois), (a) conform to the requirements of Revised Article 7 of the
UCC, as in effect in Illinois, and (b) are designed to effect the
perfection of OCC's security interest in the electronic receipts
through ``control.'' OCC effects perfection of its security interest in
the electronic receipts by ``control'' in accordance with Revised
Article 7 of the UCC, because NYSE Liffe US's electronic delivery
system reliably establishes OCC as the transferee of such electronic
receipts during the delivery process.
Perfection Through Bailee
In the event a court applies the laws of a jurisdiction that has
not adopted Revised Article 7 of the UCC, OCC believes that its
security interest in the electronic receipts would still be perfected
under Article 9 of the UCC because of the bailment arrangements in
place with the vaults holding the underlying precious metals. Each
vault will sign a vault agreement agreeing that the vault holds the
metals on behalf of OCC during the delivery process. OCC is an express
third-party beneficiary of these vault agreements.
Perfection by Filing Financing Statements
In addition, both OCC's Rules and the Amended and Restated Clearing
Agreement provide for a secondary method of perfecting OCC's security
interest in both the electronic receipts and the underlying precious
metals through the filing of financing statements against each Clearing
Member in accordance with Article 9 of the UCC. Filing financing
statements is an effective way to perfect the security interest in
jurisdictions with, and without, Revised Article 7 of the UCC in
effect.
[[Page 30365]]
OCC believes that its primary and secondary perfection methods
provide it with ample protection in the event of one of its clearing
members fails to deliver a vault receipt that represent metals
underling Precious Metals Futures. OCC perfected its security interest
in such vault receipts through methods of perfection that work in
jurisdictions that have adopted Revised Article 7 of the UCC, like
Illinois, and in jurisdictions that have not, like New York. OCC has
also adopted traditional perfection methods such as filing financing
statements. Moreover, OCC requires each Clearing Member to deposit
margin, which provides protection for OCC in the event of a Clearing
Member's failure to satisfy its delivery or receipt obligations in
respect of the settlement of Precious Metals Futures.
The proposed changes to OCC's By-Laws and Rules are consistent with
the purposes and requirements of Section 17A(b)(3)(A) of the Securities
Exchange Act of 1934, as amended (the ``Exchange Act'' or ``Act''),
because they are designed to permit OCC to perform clearing services
for products that are subject to the jurisdiction of the Commodity
Futures Trading Commission (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. They accomplish this purpose by
revising existing procedures regarding the delivery of metals
underlying certain physically-settled futures and futures option
contracts to make express provision for the use of warehouse depository
receipts in electronic form and for a transition to the use of vault
receipts that are also in electronic form as a more efficient method of
delivery consistent with evolving industry practice. The proposed rule
change is not inconsistent with any rules of OCC, including any rules
proposed to be amended.
(B) Clearing Agency's Statement on Burden on Competition
OCC does not believe that the proposed rule change would impose any
burden on competition that is not necessary or appropriate in
furtherance of the Act because it relates solely to a commodity futures
product subject to the exclusive jurisdiction of the Commodity Futures
Trading Commission and therefore will not have any impact, or impose
any burden, on competition in securities markets or any other market
governed by the Act.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
Written comments on the proposed rule change 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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(i) of the Act \5\ and paragraph (f)(i) of Rule 19b-4
thereunder \6\ because it constitutes a stated policy, practice, or
interpretation with respect to the meaning, administration, or
enforcement of an existing rule. OCC states that it will delay the
implementation of the rule change until it is deemed certified under
CFTC Regulation Sec. 40.6.\7\ At any time within 60 days of the filing
of the proposed rule change, the Commission summarily may temporarily
suspend such rule change if it appears to the Commission that such
action is necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of
the Act.
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\5\ 15 U.S.C. 78s(b)(3)(A)(i).
\6\ 17 CFR 240.19b-4(f)(1).
\7\ 17 CFR 40.6.
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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-2013-06 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-2013-06. 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
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of OCC and on OCC's
Web site (http://www.theocc.com/about/publications/bylaws.jsp). 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-2013-06 and should be
submitted on or before June 12, 2013.
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\8\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-12165 Filed 5-21-13; 8:45 am]
BILLING CODE 8011-01-P