[Federal Register Volume 64, Number 113 (Monday, June 14, 1999)]
[Notices]
[Pages 31889-31890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14991]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41486; SR-OCC-99-01]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change Relating to Acceptance of
Letters of Credit for Margin Purposes
June 7, 1999.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on January 22, 1999, 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 proposed rule change will modify OCC's rules with respect to
letters of credit accepted for margin purposes.
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 proposed rule change will conform OCC's Rule 604(c) to the
terms of the Uniform Letter of Credit (``ULC'') created by the Unified
Clearing Group (``UCG''). The UCG is an organization composed of all
major securities and futures clearing organizations and depositories in
the United States.\3\ The ULC was developed to foster uniformity among
the various U.S. securities and futures clearing organizations with
respect to the acceptable terms of letters of credit that are deposited
as margin.\4\ All UCG member that accept letters of credit as margin
are expected to use the ULC and to convert to the ULC during calendar
year 1999.
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\3\ The members of the UCG include the Boston Stock Exchange
Clearing Corporation, The Depository Trust Company, Government
Securities Clearing Corporation, MBS Clearing Corporation, National
Securities Clearing Corporation, OCC, Board of Trade Clearing
Corporation, Chicago Mercantile Exchange, Clearing Corporation of
New York, Kansas City Board of Trade, Minneapolis Grain Exchange,
New York Mercantile Exchange, Emerging Markets Clearing Corporation,
and Clearing Corporation for Options and Securities.
\4\ In developing the ULC, UCG consulted with several letter of
credit issuing banks and the National Standby Letter of Credit
Committee of the International Financial Service Association
(formerly known as the U.S. Council on International Banking). In
addition, various regulatory agencies, including the staffs of the
Securities and Exchange Commission, the Commodity Futures Trading
Commission, and Board of Governors of the Federal Reserve System
attended the UCG meetings where the ULC was discussed.
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Under the terms of the ULC, clearing corporations can continue to
present a demand for payment by hand delivery and/or SWIFT message.\5\
The ULC also permits a demand for payment by facsimile transmission.
However, unlike the current letters of credit accepted by OCC, the ULC
does not permit a demand by tested telex.
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\5\ SWIFT messages are secured, electronic transmissions.
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The rule change proposes to make several amendments to Rule 604(c).
First, it will require the issuing bank to make payment against the
letter of credit within sixty minutes of presentment for payment if the
demand is made by a preset cutoff time on a business day, which OCC
specifies in its rules as 3:00 p.m. Central Time. Demands submitted to
the bank after the cut-off time or on a day when the bank is closed
must be honored within sixty minutes of the opening of business on the
next business day. Certain exceptions will be made in the case of
foreign currency letters of credit.
Second, the rule change will permit OCC flexibility in specifying
acceptable expiration dates for letters of credit. Currently OCC
requires that a letter expire no later than the first day of the next
calendar quarter but is considering permitting letters of credit to be
issued with expiration dates more than one calendar quarter in the
future. In order to simplify recordkeeping, OCC presently anticipates
that it will continue to require the replacement of outstanding letters
of credit with newly issued letters of credit on an annual basis.
Third, the rule change will eliminate provisions that permit a
clearing member to issue instructions to OCC that restrict a previously
unrestricted letter of credit or a portion thereof to serve as margin
only for the clearing member's customers' accounts. These provisions
have generally not been used, and clearing members who need to restrict
letters of credit to the customers' accounts for regulatory compliance
purposes may do so by placing such restriction on the letter itself.
OCC believes that a restriction on the face of the letter will provide
better notice of the restriction and should reduce the likelihood of
confusion over which letters are intended to be restricted and which
are not.
Finally, the proposed rule deletes the final sentence of Rule
604(c), which allows members to deposit letters of credit denominated
in any foreign currency that is a trading currency, because it is
unnecessary in light of other provisions proposed for Rule 604 that
specify letters of credit may be denominated in any currency approved
by OCC for that purpose.
OCC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act and the rules and regulations
thereunder because, among other things, it will promote the prompt and
accurate clearance and settlement of transactions in securities by
requiring issuing banks to make payment against letters of credit
within sixty minutes of a demand for payment rather than by the close
of the third banking day following presentation of a demand for payment
as is presently the case.
(B) Self-Regulatory Organization's Statement on Burden on Completion
OCC does not believe that the proposed rule change will impose any
burden on competition.
[[Page 31890]]
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
No comments on the proposed rule change were solicited or received.
OCC will notify the Commission of any written comments it receives.
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 the self-regulatory organization consents,
the Commission will:
(a) By order approve the 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. 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-
0609. 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-99-01 and should be
submitted by July 6, 1999.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-14991 Filed 6-11-99; 8:45 am]
BILLING CODE 8010-01-M