[Federal Register Volume 59, Number 13 (Thursday, January 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-1341]
[[Page Unknown]]
[Federal Register: January 20, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33467; File No. SR-OCC-92-09]
Self-Regulatory Organizations; The Options Clearing Corporation;
Order Approving a Proposed Rule Change Relating to the Acceptance of
Depository Receipts and Escrow Receipts
January 12, 1994.
On March 17, 1992, The Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ a proposed rule change to establish a consistent policy
for the acceptance of depository receipts, escrow receipts, and letters
of credit. On April 21, 1992, notice of the proposed rule change was
published in the Federal Register to solicit comments from interested
persons.\2\ No comments were received. This order approves the
proposal.
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\Securities Exchange Act Release No. 30584 (April 14, 1992, 57
FR 14608.
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I. Description
Depository receipts and escrow receipts are issued by approved
banks, trust companies, or depositories (collectively referred to as
``depository'' or ``depositories'') to acknowledge that the issuing
depository is holding securities either for the benefit of OCC or for
the benefit of the depositing clearing member. Clearing members may
submit depository receipts in fulfillment of their margin and clearing
fund obligations. Clearing members may submit escrow receipts in
fulfillment of their margin obligations.
The proposed rule change establishes a policy under which OCC will
not accept a depository receipt or an escrow receipt issued by a
depository if such depository, a parent, or an affiliate has a 20% or
greater equity interest in the total capital of the clearing member
making the deposit or for whose account such a deposit is being
made.\3\ The policy will apply to depository receipts and escrow
receipts issued by both U.S. and foreign depositories. If OCC
determines that a depository has a 20% or greater interest in the total
capital of a submitting clearing member, the clearing member will not
be able to use the collateral services of the depository. However, such
a prohibition will not prevent the depository from providing collateral
services to other OCC clearing members with whom the depository does
not have such interests.
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\3\The proposal will add an interpretation to each of the
following by-laws and rules: By-Laws Article VIII, Section 3 (forms
of clearing fund contribution); Rule 604 (forms of acceptable
margin); Rule 610 (deposit of underlying security as margin); Rule
613 (escrow receipt depository program); and Rule 1801 (deposits of
index option escrow).
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II. Discussion
The Commission believes that OCC's proposed rule change is
consistent with the Act and particularly with section 17A.\4\ Sections
17A(b)(3) (A) and (F) of the Act require that each registered clearing
agency must be organized and its rules must be designed to assure the
safeguarding of funds and securities which are in the custody or
control of the clearing agency or for which it is responsible.\5\ As
discussed below, the Commission believes that OCC's proposal is
consistent with this requirement.
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\4\15 U.S.C. 78q-1.
\5\15 U.S.C. 78q-1(b)(3) (A) and (F).
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OCC states in its filing that there appears to be a growing trend
of common ownership between depositories and broker-dealers. OCC
believes that it is exposed to unreasonable credit risks when there is
a close affiliation between a depository and a clearing member that is
using the depository receipt and escrow receipt services of the
depository. In response to this trend and to reduce its credit risk
exposure, OCC filed this proposal.
Currently, OCC will not accept as margin a letter of credit for the
account of a clearing member in which the issuing institution, a
parent, or an affiliate has an equity interest of 20% or more of such
clearing member.\6\ The prohibition against accepting letters of credit
issued by an affiliated financial institution is intended to limit
OCC's risk exposure in the event of the simultaneous failure of both a
clearing member and its affiliate. Because clearing members' margin
deposits and clearing fund contributions serve to protect OCC in the
event a clearing member is not able to fulfill its obligations to OCC,
OCC believes that this same policy rationale supports its proposed rule
change regarding the issuance of depository receipts and escrow
receipts by affiliated depositories.
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\6\OCC Rule 604, Interpretations and Policies .07.
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As the interdependence between a clearing member and the depository
issuing depository receipts and escrow receipts for the clearing member
decreases, the likelihood of a simultaneous failure becomes more
remote. The 20% limitation on common ownership will reduce OCC's
potential risk and will further enable OCC to assure the safeguarding
of funds and securities which are in OCC's custody or control or for
which it is responsible.
III. Conclusion
Based on the foregoing, the Commission finds that OCC's proposed
rule change is consistent with the requirements of the Act and, in
particular section 17A of the Act.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-OCC-92-09) be, and hereby
is, approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-1341 Filed 1-19-94; 8:45 am]
BILLING CODE 8010-01-M