[Federal Register Volume 79, Number 11 (Thursday, January 16, 2014)]
[Rules and Regulations]
[Pages 2779-2781]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-00556]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 300
[Release No. SIPA-172; File No. SIPC- 2012-01]
Rules of the Securities Investor Protection Corporation
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
approving a proposed rule change filed by the Securities Investor
Protection Corporation (``SIPC''). The proposed rule change amends SIPC
Rule 400 (``Rule 400''), entitled ``Rules Relating to Satisfaction of
Customer Claims for Standardized Options,'' which relates to the
satisfaction of customer claims for standardized options under the
Securities Investor Protection Act of 1970 (``SIPA''). Because SIPC
rules have the force and effect as if promulgated by the Commission,
the rules are published in Title 17 of the Code of Federal Regulations,
where the rule change will be reflected.
DATES: Effective Date: February 18, 2014.
FOR FURTHER INFORMATION CONTACT: Michael A. Macchiaroli, Associate
[[Page 2780]]
Director, at (202) 551-5525; Thomas K. McGowan, Deputy Associate
Director, at (202) 551-5521; Sheila Dombal Swartz, Special Counsel, at
(202) 551-5545; or Kimberly N. Chehardy, Special Counsel, at (202) 551-
5791, Office of Financial Responsibility, Division of Trading and
Markets, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-7010.
SUPPLEMENTARY INFORMATION: The Commission is approving a proposed rule
change filed by SIPC, amending Rule 400, 17 CFR 300.400 under SIPA.
I. Background
On November 7, 2012, SIPC filed a proposed rule change pursuant to
section 3(e)(2)(A) of SIPA \1\ with the Securities and Exchange
Commission.\2\ SIPC subsequently submitted an amendment to the proposed
rule change on January 31, 2013.\3\ Notice of the proposed rule change
was published in the Federal Register on November 5, 2013.\4\ The
Commission did not receive comments in response to the notice. The
Commission is approving the proposed rule change under section 3(e)(2)
of SIPA.
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\1\ 15 U.S.C. 78ccc(e)(2)(A).
\2\ See Letter from Josephine Wang, General Counsel and
Secretary, SIPC, to Elizabeth M. Murphy, Secretary, Securities and
Exchange Commission (Nov. 7, 2012).
\3\ See Letter from Josephine Wang, General Counsel and
Secretary, SIPC, to Elizabeth M. Murphy, Secretary, Securities and
Exchange Commission (Jan. 31, 2013) (``Pursuant to discussions
between SIPC and the Commission's Division of Trading and Markets,
SIPC hereby submits a partial amendment to the proposed amendments
previously submitted.''). ``The partial amendment makes changes only
to subsection (h) of Rule 400, by inserting the phrase ``a
`security' under section 16(14) of the Act and is'' prior to the
words ``issued by a securities clearing agency . . . .'' Id.
\4\ See Notice of Filing a Proposed Rule Change Relating to
Securities Investor Protection Corporation Rule 400, Release No.
SIPA-171 (Oct. 29, 2013), 78 FR 66318 (Nov. 5, 2013).
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II. Proposed Rule Change
Rule 400 was enacted to provide clarity in the treatment of
customer claims based on ``Standardized Options'' \5\ positions in the
liquidation of broker-dealers under SIPA. Currently, Rule 400 provides
for the closeout of open Standardized Options positions upon the
commencement of a SIPA liquidation. Based upon the amounts realized
upon closeout, the trustee calculates the value of customers'
Standardized Options positions, and credits or debits customers'
accounts by the appropriate amounts. The amendments to Rule 400 are
designed to: (1) Provide trustees appointed under SIPA with greater
flexibility in the treatment of Standardized Options upon the
commencement of a SIPA liquidation proceeding; and (2) modify the
definition of Standardized Options to include options issued by a
Commission-registered securities clearing agency or a foreign
securities clearing agency, i.e., a cleared over-the-counter option
(``OTC Option'').
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\5\ The term Standardized Options is defined in paragraph (h) of
Rule 400 as ``options traded on a national securities exchange, an
automated quotation system of a registered securities association,
or a foreign securities exchange. 17 CFR 300.400(h).
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In light of experience and knowledge gained from the liquidation of
Lehman Brothers Inc. (``Lehman'') and other SIPA proceedings, SIPC has
determined that allowing SIPA trustees the flexibility, subject to SIPC
approval, of transferring customers' options positions or of
liquidating their positions, would be beneficial to the investing
public and consistent with the customer protection purposes of SIPA.
SIPC stated that the ability to transfer Standardized Options positions
to another brokerage in lieu of an automatic closeout gives SIPA
trustees more flexibility in handling such customer assets after the
commencement of a SIPA liquidation proceeding, and more closely
approximates what the customer would expect to be in his account but
for the failure of the broker-dealer.
This is particularly true where the trustee, as in the Lehman case,
was able promptly to effectuate bulk transfers of customer accounts to
other brokerages enabling customers to regain access to their accounts
in the form in which the accounts existed pre-liquidation, with
comparatively minimal disruption. In such instances, customers
generally are better served by having their options positions
transferred with their other securities to their accounts at their new
broker-dealer. SIPC stated that proposed amendments would provide clear
authority for a SIPA trustee to transfer the Standardized Options
positions, with SIPC's consent. This greater flexibility in the
treatment of open positions would enhance customer protection under
exigent circumstances, and potentially avoid exacerbating the turmoil
or harm to customers and/or the markets that could be caused by the
forced liquidation of open positions.
Under paragraph (h) of Rule 400, Standardized Options means options
traded on a national securities exchange, an automated quotation system
of a registered securities association, or a foreign securities
exchange. The amendments modify the definition of Standardized Options
to include any other option that is a security under section 16(14) of
SIPA and is issued by a registered securities clearing agency or
foreign securities clearing agency.\6\ For example, the Options
Clearing Corporation (``OCC'') proposed, and the Commission approved, a
rule change to establish a legal and operational framework for OCC to
provide central clearing for OTC Options.\7\ If OCC clears OTC Options,
SIPC stated these options will be deemed Standardized Options subject
to closeout or transfer in a SIPA proceeding.
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\6\ Existing Rule 400 applies to options traded on foreign
securities exchanges as well as U.S. exchanges.
\7\ See Securities Exchange Act Release No. 67835 (Sept. 12,
2012), 77 FR 57602 (Sept. 18, 2012), (SR-OCC-2012-14); see also
Securities Exchange Act Release No. 68434 (Dec. 14, 2012), 77 FR
75243 (Dec. 19, 2012) (approving proposed rule change). OCC also
filed, and received accelerated approval of, a proposed rule change
to reflect enhancements in its system for theoretical analysis and
numerical simulations as applied to longer-tenor options. Securities
Exchange Act Release No. 70719 (Oct. 18, 2013), 78 FR 63548 (Oct.
24, 2013), (SR-OCC-2013-16).
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Because the OTC Options are similar to exchange-traded index
options, and generally would be cleared by a securities clearing agency
registered under section 17A of the Securities Exchange Act of 1934
(``Exchange Act'') \8\ subject to the same basic rules and procedures
used for the clearance of index options, SIPC stated there appears to
be no practical basis to treat OTC Options differently under SIPA for
purposes of Rule 400. Indeed, modifying the definition of Standardized
Options under paragraph (h) of Rule 400 to include OTC Options would
enhance the protections afforded customers in the event of a
liquidation of their broker-dealer.
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\8\ 15 U.S.C. 78q-1.
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II. Discussion and Commission Action
Section 3(e)(2)(A) of SIPA provides that the SIPC Board of
Directors must file with the Commission a copy of any proposed
amendment to a SIPC rule.\9\ Section 3(e)(2)(B) of SIPA provides that
within thirty-five days after the date of publication of the notice of
filing of a proposed rule change, the Commission shall: (1) By order
approve the proposed rule change; or (2) institute proceedings to
determine whether the proposed rule change should be disapproved.\10\
Further, section 3(e)(2)(D) of SIPA provides that the Commission shall
approve a proposed rule change if it finds that the proposed rule
change is in the public interest and is consistent with the purposes of
SIPA.\11\
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\9\ 15 U.S.C. 78ccc(e)(2)(A).
\10\ 15 U.S.C. 78ccc(e)(2)(B).
\11\ 15 U.S.C. 78ccc(e)(2)(D).
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The Commission finds, pursuant to section 3(e)(2)(D) of SIPA, that
the proposed rule change is in the public interest and consistent with
the purposes of SIPA. First, as noted above, SIPC has determined that
allowing SIPA trustees the flexibility, subject to SIPC approval, to
transfer customers' options positions or to liquidate their positions,
would be beneficial to the investing public and consistent with the
customer protection purposes of SIPA. The ability to transfer
Standardized Options positions to another brokerage instead of being
required to close them out gives SIPA trustees more flexibility in
handling customer assets after the commencement of a SIPA liquidation
proceeding. Second, SIPA noted that modifying the definition of
Standardized Options under paragraph (h) of Rule 400 to include OTC
Options would enhance the protections afforded customers in the event
of a liquidation of their broker-dealer. This modification also
clarifies that--like exchange-traded options--OTC Options would be
deemed Standardized Options subject to closeout or transfer in a SIPA
liquidation proceeding. Accordingly, the Commission finds that the
proposed SIPC rule change is in the public interest and is consistent
with the purposes of the SIPA.
It is therefore ordered by the commission, pursuant to section
3(e)(2) of SIPA, that the above mentioned proposed rule change is
approved. In accordance with section 3(e)(2) of SIPA, the approved rule
change shall be given the force and effect as if promulgated by the
Commission.
III. Statutory Authority
Pursuant to SIPA, 15 U.S.C. 78aaa et. seq., and particularly,
section 3(e) (15 U.S.C. 78ccc(e)), SIPC is amending section 300.400 of
Title 17 of the Code of Federal Regulations in the manner set forth
below.
List of Subjects in 17 CFR Part 300
Brokers, Securities.
Text of the Amendments
In accordance with the foregoing, Title 17, Chapter II of the Code
of Federal Regulations is amended as follows:
PART 300--RULES OF THE SECURITIES INVESTOR PROTECTION CORPORATION
0
1. The authority citation for part 300 is revised to read as follows:
Authority: 15 U.S.C. 78ccc.
* * * * *
Sec. 300.400 [Amended]
0
2. Section 300.400 is amended by:
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a. In paragraph (b), adding the phrase ``except to the extent that the
trustee, with SIPC's consent, or SIPC as trustee, as the case may be,
has arranged or is able promptly to arrange, a transfer of some or all
of such positions to another SIPC member'' after the phrase ``accounts
of customers'';
0
b. In paragraph (e), adding the phrase ``except to the extent that such
positions have been transferred as provided in paragraph (b) of this
section'' after the phrase ``section 7(b)(1) of the Act''; and
0
c. In paragraph (h), adding the phrase ``, and any other option that is
a security under section 16(14) of the Act, 15 U.S.C. 78lll(14), and is
issued by a securities clearing agency registered under section 17A of
the Securities Exchange Act of 1934, 15 U.S.C. 78q-1, or a foreign
securities clearing agency'' after the phrase ``foreign securities
exchange''.
Dated: January 9, 2014.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2014-00556 Filed 1-15-14; 8:45 am]
BILLING CODE 8011-01-P