[Federal Register Volume 62, Number 164 (Monday, August 25, 1997)]
[Notices]
[Pages 44998-44999]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-22527]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38948; File No. SR-OCC-97-05]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change Relating to Early Warning
Notices
August 19, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') 1, notice is hereby given that on May 15, 1997,
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
primarily by OCC. The Commission is publishing this notice to solicit
comments from interested persons on the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The purpose of the proposed rule change is to revise OCC's Rule 303
to expand the circumstances under which a clearing member is to provide
OCC with early warning notices.
II. Self-Regulatory Organization'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.2
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\2\ The Commission has modified the text of the summaries
prepared by OCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The purpose of the proposed rule change is to revise OCC's Rule 303
to expand the circumstances under which a clearing member is to provide
OCC with early warning notices. Currently, Rule 303 requires a clearing
member to provide OCC with an early warning notice if it experiences
certain enumerated financial difficulties or if it has provided any
notice required pursuant to Commission Rule 15c3-
1(e)(1)(iv).3 Specifically, Rule 303 would be expanded to
explicitly provide that a clearing member must immediately notify an
officer of OCC of any notice that such clearing member gives, is
required to give, or receives from any regulatory organization
regarding any financial difficulty affecting the clearing member or of
any failure by the clearing member to be in compliance with the
financial responsibility rules or capital requirements of any
regulatory organization. As proposed, Rule 303 would require the
clearing member to promptly confirm such notice in writing. In
addition, the lead-in language of (b) and (c) of Rule 303 (as
relettered) will be revised to conform to the requirement in new
paragraph 303(a) that an officer of OCC be notified by telephone of any
notice described in the paragraph.
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\3\ 17 CFR 240.15c3-1(e)(1)(iv). Rule 15c3-1(e) requires broker-
dealers to provide written notice to the Commission in connection
with certain transactions involving a significant withdrawal of
equity capital.
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The term ``regulatory organization'' will be defined in proposed
Interpretations and Policies .01 to mean (i) the Commission and any
other federal or state regulatory agency having jurisdiction over the
clearing member including the Commodity Futures Trading Commission
(``CFTC'') in the case of a clearing member which is subject to the
jurisdiction of the CFTC; (ii) any self-regulatory organization as
defined in Section 3(a) of Act 4 of which the clearing
member is a member or participant; (iii) any clearing organization, as
defined in Regulation Section 1.3(d) under the Commodity Exchange
Act,5 board of trade, contract market, and registered
futures association of which the clearing member is a member or
participant; and (iv) in the case of a non-U.S. clearing member, any
non-U.S. regulatory agency or instrumentality or independent
organization or exchange having jurisdiction over the non-U.S. clearing
member or of which the non-U.S. clearing member is a member or
participant.
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\4\ 15 U.S.C. 78c(a).
\5\ 17 CFR 1.3(d).
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OCC believes that these amendments will enhance the effectiveness
of its financial surveillance program by providing OCC with material
information, some of which it currently
[[Page 44999]]
does not receive, concerning a clearing member's financial condition.
For example, many of OCC's clearing members are also registered as
futures commission merchants (``FCMs'') under the Commodity Exchange
Act and as such are subject to the financial reporting requirements of
the CFTC and the early warning notice requirements of commodity self-
regulatory organizations. Because of differences in the early warning
notice criteria used by the commodity regulatory organizations and
those of securities regulatory organizations, events triggering early
warning notice requirements for an FCM (e.g., net capital below a
specified percentage of segregated funds) would not necessarily create
an early warning notice requirement for a registered broker-dealer.
Consequently, under OCC's current rules, a situation could occur that
would require a clearing member to give early warning notice to its
commodity regulatory authority but would not require notice to be given
to OCC. Accordingly, requiring a clearing member to provide OCC with
early warning notices which it is required to provide to any other
regulatory organization should assist OCC in assessing the ongoing
creditworthiness of its clearing members.
OCC believes that there is potential overlap between the
requirements of new Rule 303(a) and existing Rule 303(c) (as
relettered), such that a non-U.S. clearing member might be required to
notify OCC of a notice from a non-U.S. regulatory agency pursuant to
both paragraphs.\6\ However, OCC believes that the overlap should not
impose an inappropriate burden on non-U.S. clearing members because the
requirement to notify OCC of an event can be satisfied by the same
notice to OCC even if the requirement arises under both paragraphs.
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\6\ Existing paragraph (c) of Rule 303 (as relettered) currently
provides that an exempt non-U.S. clearing member must notify OCC
promptly of any violation on its part of the rules or regulations of
its non-U.S. regulatory agency or any notice received from such
agency that alleges a violation of such rules or regulations,
informs the non-U.S. clearing member that it may violate such rules
or regulations, or informs the non-U.S. clearing member that it has
triggered any provision relating to early warning notices contained
in such rules or regulations.
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OCC believes the proposed rule change is consistent with the
purposes and requirements of Section 17A of the Act \7\ in that it
strengthens OCC's rules relating to financial surveillance and
financial responsibility which are designed, in general, to protect
OCC, clearing members, and the investing public.
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\7\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
OCC does not believe that the proposed rule change would impose any
burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
Written comments 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 thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period (i), as the
Commission may designate up to ninety days of such date if it finds
such longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which OCC consents, the Commission will:
(A) By order approve 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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
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 inspection and copying in the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such filing also will be available
for inspection and copying at the principal office of OCC. All
submissions should refer to File No. SR-OCC-97-05 and should be
submitted by September 15, 1997.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-22527 Filed 8-22-97; 8:45 am]
BILLING CODE 8010-01-M