[Federal Register Volume 79, Number 59 (Thursday, March 27, 2014)]
[Notices]
[Pages 17214-17216]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-06761]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71769; File No. SR-OCC-2014-05]
Self-Regulatory Organizations; the Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Reflect the Elimination of a Discount to OCC's Clearing Fee Schedule
March 21, 2014.
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 March 21, 2014, The 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. OCC filed the proposed rule change
pursuant to Section 19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(2) \4\
thereunder, so that the proposal was effective upon filing with the
Commission. The Commission is publishing this notice to solicit
comments on the rule change from interested parties.
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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).
\4\ 17 CFR 240.19b-4(f)(2).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
OCC proposes to amend its Schedule of Fees, effective April 1,
2014, to reflect the elimination of a discount to OCC's clearing fee
schedule.
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 these
statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to amend OCC's Schedule
of Fees to reinstate the permanent reduced fee schedule adopted,
effective May 1, 2007, for securities options and securities
futures.\5\ In conjunction with adopting this permanent reduced fee
schedule, OCC simultaneously discounted the permanent schedule.
Effective January 1, 2008, OCC replaced the May 1, 2007, discounted
schedule \6\ with the discount remaining in effect until further action
of by the Board. Implementation of this schedule was premised on the
discounts not adversely affecting OCC's ability to meet its expenses
and maintain an acceptable level of retained earnings. Article IX,
Section 9 of OCC's By-Laws permits OCC to establish a fee structure to
cover operating expenses, to maintain reserves as are deemed reasonably
necessary by the Board to provide facilities for the conduct of OCC's
business and to accumulate such additional surplus as the Board deems
advisable to allow OCC to meet its obligations to clearing members and
the general public.
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\5\ See Exchange Act Release No. 34-55709 (May 4, 2007), 72 FR
26669 (May 10, 2007) (SR-OCC-2007-05). This schedule is applied to
futures and futures options as well.
\6\ See Exchange Act Release No. 34-57192 (January 24, 2008), 73
FR 5618 (January 30, 2008) (SR-OCC-2007-17).
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OCC has determined to reinstate its permanent reduced fee schedule.
OCC's revenues principally are derived from clearing fees charged to
clearing members and OCC's current and projected operating expenses
have increased due to current and anticipated regulatory
requirements.\7\ These requirements include those proposed by the
Commission at its meeting on March 12, 2014, requiring OCC to be in a
position to cover potential general business losses so that it can
continue operations if those losses materialize.\8\ OCC's current and
anticipated operating expenses have also increased as a result of costs
associated with the engagement of outside professionals to address
various regulatory issues arising under the Dodd-Frank Act, notably
additional expectations and requirements arising from OCC's status as a
Systemically Important Financial Market Utility (``SIFMU''), and OCC's
assessment of and compliance with international standards applicable to
clearing agencies. Employee costs additionally are expected to rise
further in 2014 as resources are enhanced to meet current and
anticipated regulatory obligations, including increased requirements to
produce data, analysis and information to the Commission in connection
with its exercise of its supervisory authority over OCC.
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\7\ See Statements of Income and Comprehensive Income in OCC's
2013 Annual Report available on OCC's Web site, www.theocc.com. In
2013, clearing fees represented over 90% of OCC's total revenues.
Between 2012 and 2013, OCC annual expenses increased by
approximately 9%. OCC's currently projects a greater increase in
expenses in 2014.
\8\ See Exchange Act Release No. 34-71699 (March 12, 2014). OCC
anticipates that these requirements will need to be met by the end
of 2014. The determination to reinstate the permanent reduced fee
schedule was based on an analysis of such requirements and such
reinstatement being effective April 1, 2014. Implementation
thereafter potentially could have required an increase in the fees
beyond the reinstatement of the permanent reduced fee schedule.
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As noted above, the Board unanimously determined to reinstate the
permanent reduced fee schedule to compensate for these increased
expenses. In making this determination, the Board carefully considered
the requirements of Article IX, Section 9 of OCC's By-Laws as well as
the expectations and obligations imposed upon OCC as a SIFMU in the
national system for clearance and settlement. The Board further
evaluated the potential for a refund of clearing fees in 2014. While no
affirmative decision has been made by the Board regarding such refund,
the Board recognized that OCC's current funding, reserve and surplus
needs might result in refunds, if any, which are significantly lower in
2014 than in past years.\9\ OCC will monitor the impact of returning to
the permanent reduced fee schedule as well as OCC's needs to evaluate
whether additional action should be taken. For example, changes in
revenues as a result of significant fluctuations in cleared volume
(upwards or downwards) may
[[Page 17215]]
prompt a re-assessment of the fee schedule (downwards or upwards).
Cleared volumes also will be evaluated in connection with considering
potential refunds for 2014.
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\9\ See OCC's 2013 Annual Report, Footnote 8 to the Notes to the
Financial Statements for a description of recent past refunds.
Footnote 8 further discusses that OCC's Board sets clearing fees and
determines the amounts of refunds, fee reductions and discounts, if
any, based upon OCC's current funding needs.
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The impact of the costs to comply with the new regulatory
requirements and reinstate the permanent reduced fee schedule and the
potential effect on a 2014 refund, if any, was discussed with each of
the clearing members that would be most affected by these changes, most
of which are represented on the Board. The vote of the Board to approve
this filing included the affirmative votes of the six Member Directors
present at the meeting.
The following chart sets forth the revised clearing fee schedule.
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Current Standard fee schedule
Contracts/trade discounted fee (effective April 1,
schedule 2014)
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1-500......................... $0.03/contract. $0.05/contract
501-1,000..................... 0.024/contract. 0.04/contract
1,001-2,000................... 18.00/trade.... 0.03/contract
>2,000........................ 18.00/trade.... 55.00/trade
Market Maker/Specialist 0.01........... 0.02
Scratch per side.
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OCC published an Information Memo on March 10, 2014, to all of its
clearing members and exchanges notifying them of the changes to the
Schedule of Fees that would become effective as of April 1, 2014, \10\
and a second Information Memo on March 13, 2014, notifying them of the
likely effects on the refunds for 2014. The Information Memos informed
clearing members and exchanges that due to current and projected
increases in operating expenses related to regulatory requirements, OCC
would reinstate the permanent reduced clearing fee schedule adopted May
1, 2007, and that refunds based on 2014 cleared volume are likely to be
significantly lower in 2014 as a result of the new regulatory
expectations and requirements, but that it was expected that such
impacts should not extend beyond 2014 based on current projections.
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\10\ OCC has represented that notwithstanding its immediate
effectiveness, implementation of this rule change will be delayed
until this rule change is deemed certified under CFTC Regulation
Sec. 40.6.
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2. Statutory Basis
OCC believes the proposed rule change is consistent with Section
17A(b)(3)(D) \11\ of the Act, because by eliminating a discount but
otherwise leaving the current clearing fee schedule intact, OCC will
continue to equitably allocate fees among its clearing members and
other market participants. OCC also believes that the proposed rule
change is consistent with Rule 17Ad-22(d)(9) \12\ because the fee
schedule amended by this rule change is publicly available and
therefore provides clearing members and other market participants with
sufficient information to allow them to identify and evaluate the costs
associated with OCC's services. The proposed rule change is not
inconsistent with the existing rules of the OCC including any other
rules proposed to be amended.
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\11\ 15 U.S.C. 78q-1(b)(3)(D).
\12\ 17 CFR 240.17Ad-22(d)(9).
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For the foregoing reasons, OCC believes that the proposed rule
change is in the public interest, would be consistent with the
requirements of the Act applicable to clearing agencies, and would not
impose a burden on competition that is unnecessary or inappropriate in
furtherance of the purposes of the Act.
(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 purposes of the Act.\13\
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\13\ 15 U.S.C. 78q-1(b)(3)(I).
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Changes to the rules of a clearing agency may have an impact on the
participants in a clearing agency, their customers, and the markets
that the clearing agency serves. This proposed rule change primarily
affects such users and OCC believes that the proposed modifications
would not disadvantage or favor any particular user in relationship to
another user because the discount is being eliminated for, and the
clearing fees apply equally to, all users of OCC's services.
For the foregoing reasons, OCC believes that the proposed rule
change is in the public interest, would be consistent with the
requirements of the Act applicable to clearing agencies, and would not
impose a burden on competition that is unnecessary or inappropriate in
furtherance of the purposes of 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
Pursuant to Section 19(b)(3)(A) \14\ and Rule 19b-4(f)(2),\15\ the
proposed rule change is filed for immediate effectiveness inasmuch as
it pertains to fees charged to OCC clearing members. At any time within
60 days of the filing of the proposed rule change, the Commission may
summarily abrogate such rule 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.\16\
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(2).
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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-2014-05 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2014-05. This file
number should be included on the
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subject line if email is used. To help the Commission process and
review your comments more efficiently, please use only one method of
submission. 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 filing also will be available for inspection
and copying at the principal office of OCC and on OCC's Web site at
http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_14_05.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-2014-05
and should be submitted on or before April 17, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-06761 Filed 3-26-14; 8:45 am]
BILLING CODE 8011-01-P