[Federal Register Volume 80, Number 28 (Wednesday, February 11, 2015)]
[Notices]
[Pages 7668-7670]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-02750]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74212; File No. SR-OCC-2015-04]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of a Proposed Rule Change, and Amendment 1 Thereto, To
Expand the Officers Who May Declare That a Clearing Member Is Summarily
Suspended
February 5, 2015.
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 January 23, 2015, 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 OCC. On February 3, 2015, OCC filed Amendment
No. 1 to the proposed rule change, which corrects an inadvertent
grammatical error. 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. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
OCC proposes to amend its Rules to permit OCC to expand the
officers who may declare that a clearing member is summarily suspended
from OCC.
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
1. Purpose
The purpose of this proposed rule change is to expand the number of
OCC officers with the authority to summarily suspend a clearing member.
Currently, OCC Rule 1102 provides that only OCC's Board of Directors
(``Board'') and its Executive Chairman may summarily suspend a clearing
member. OCC believes that, given the time sensitive nature of managing
a clearing member default, it is prudent risk management to expand the
number of officers with the authority to summarily suspend a clearing
member so that OCC may begin its default management process and, in
turn, take protective action as soon as possible.
Pursuant to OCC Rule 1102, OCC's Board and Executive Chairman have
the authority to summarily suspend a clearing member. As set forth in
Interpretation and Policy .01 of Rule 1102, such action constitutes a
``default'' with respect to the clearing member. OCC's ability to
timely and effectively begin its clearing member default management
process serves a key role in protecting OCC, non-defaulting clearing
members and the public from potential consequential damage(s) that may
be caused by the default of a clearing member. In order to provide OCC
with the necessary tools to manage a clearing member default, Chapter
XI of OCC's Rules provides OCC with the authority to take certain
protective action(s) once a clearing member has been summarily
suspended (and declared to be in default).\3\ While OCC believes that
the authority provided to it in Chapter XI of its Rules is sufficiently
robust to manage a clearing member default, OCC may not exercise such
authority unless and until a clearing member has been summarily
[[Page 7669]]
suspended by either the Board or the Executive Chairman.
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\3\ For example, OCC Rule 1106(a) provides OCC with significant
flexibility with respect actions it may take in order to close out a
defaulting clearing member's open long positions.
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In order to provide greater assurance that OCC would be able to
timely and effectively manage a clearing member default, OCC is
proposing to amend OCC Rule 1102 in order to expand the list of
officers who may summarily suspend a clearing member to include OCC's
President or a designee of the Executive Chairman \4\ or President of
the rank of Senior Vice President or higher (each a ``Designed
Officer'').\5\ OCC believes that the proposed change will provide it
with additional operational flexibility because more individuals would
be able to timely summarily suspend a clearing member and thereby allow
OCC to exercise its authority to manage a clearing member default.
OCC's clearing member default management process is designed to protect
OCC, non-defaulting clearing members and the public from the defaulting
clearing member without materially impacting financial markets.\6\ By
providing additional officers with the authority to summarily suspend a
clearing member, and thereby allow OCC to begin its default management
processes, there would be greater assurance that OCC would timely take
action(s) necessary to protect itself, non-defaulting clearing members
and the public from a defaulting clearing member. OCC is also proposing
to amend Rule 1102 to require notification to the Board as soon as
practicable should a Designated Officer summarily suspend a clearing
member.\7\ The addition of such a requirement would ensure that the
Board is timely informed of activities at OCC.
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\4\ OCC filed Amendment No. 1 in order to correct an inadvertent
grammatical error. Specifically, a comma after the word ``Executive
Chairman'' was removed because it caused the description of the
proposed rule change to not be consistent with the text of the
proposed rule change.
\5\ OCC's proposal is similar to the summary suspension process
employed by the National Securities Clearing Corporation (``NSCC'').
See NSCC Rule 46, Section 3.
\6\ A description of OCC's default management process is located
at: http://www.theocc.com/risk-management/default-rules/
\7\ OCC staff will notify the Board within two hours of the
summary suspension.
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Furthermore, OCC proposes to make conforming amendments consistent
with the above to Article VI, Section 25 of its By-Laws and OCC Rule
707, which concern the summary suspension of clearing members that
participate in OCC's cross-margining programs. Specifically, Article
VI, Section of OCC's By-Laws and OCC Rule 707 will be amended to
explicitly state that the Board of Directors or a Designated Officer
may summarily suspend a clearing member based on a cross-margining
related default.
Except for the changes described above, no other changes are
proposed to OCC's suspension or default management processes as set
forth in the Rules, including a clearing member's right to appeal a
summary suspension in accordance with OCC Rule 1110.
2. Statutory Basis
OCC believes the proposed rule change is consistent with Section
17A(b)(3)(F) of the Securities Exchange Act of 1934, as amended (the
``Act'') because the proposed rule change is intended to safeguard the
securities and funds which are in the custody and control of OCC.\8\ As
described above, by expanding the list of officers with the authority
to summarily suspend a clearing member to include Designated Officers,
OCC would better ensure that it timely begins its clearing member
default management processes. Such process safeguards the securities
and funds which are in the custody or control of OCC, or for which it
is responsible, because it protects OCC, non-defaulting clearing
members and the public from the defaulting clearing member. OCC does
not believe that the proposed rule change is inconsistent with any
rules of OCC, including any rules proposed to be amended.
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\8\ 15 U.S.C. 78q-1(b)(3)(F).
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(B) Clearing Agency's Statement on Burden on Competition
OCC does not believe that the proposed rule change would impose a
burden on competition.\9\ OCC believes the proposed rule change would
not unfairly inhibit access to OCC's services or disadvantage or favor
any particular user in relationship to another user because the
proposed rule change only concerns the officers with the authority to
summarily suspend a clearing member. The proposed rule change does not
affect the conditions under which OCC may summarily suspend a clearing
member, or OCC's rights with respect to a suspended clearing member.
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\9\ 15 U.S.C. 78q-1(b)(3)(I).
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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.
(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
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 such 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 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-2015-04 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-2015-04. 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
[[Page 7670]]
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 at http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_15_04.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-2015-04
and should be submitted on or before March 4, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-02750 Filed 2-10-15; 8:45 am]
BILLING CODE 8011-01-P