[Federal Register Volume 75, Number 176 (Monday, September 13, 2010)]
[Notices]
[Pages 55619-55621]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-22701]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62854; File No. SR-OCC-2010-14]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change To Revise Its Rules To Expand
the Forms of Collateral Eligible for Incorporation in the System for
Theoretical Analysis and Numerical Simulations Risk Management
Methodology
September 7, 2010.
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 August 25, 2010, 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 on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The purpose of this proposed rule change is to revise OCC's Rules
to expand the forms of collateral eligible for incorporation in the
System for Theoretical Analysis and Numerical Simulations (``STANS'')
risk management methodology.
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 these
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The proposed rule change would make a change to Interpretation and
Policy .06 under Rule 601 in connection with expanding the forms of
collateral eligible for incorporation in the STANS
[[Page 55620]]
risk management methodology. Currently, OCC incorporates common stock
and ETFs \3\ in the STANS margin calculation process.\4\ When OCC began
including common stock and ETFs in the STANS margin calculation
process, it noted its belief that the procedure would more accurately
measure risk in Clearing Members' accounts and thereby permit OCC to
more precisely set margin requirements to reflect that risk. For those
same reasons, OCC now proposes incorporating certain fixed-income,
``government securities'' into the STANS margin calculation process.
---------------------------------------------------------------------------
\3\ ETFs fall within the definition of ``fund shares'' as that
term is denied in Article I, Section 1 of OCC's By-Laws.
\4\ Securities Exchange Act Release No. 34-58158 (July 15,
2008), 73 FR 42626 (July 22, 2008)(SR-OCC-2007-20).
---------------------------------------------------------------------------
The specific amendments proposed to OCC's Rules to facilitate
incorporation of government securities in the STANS margin calculation
process can be found at http://www.optionsclearing.com/components/docs/legal/rules_and_bylaws/sr_occ_10_14.pdf.
OCC would incorporate certain ``government securities'' into the
STANS margin calculation in phases beginning with U.S. Government
securities.\5\ Treasury Inflation Protected Securities and callable U.S
Treasury Securities would be excluded from the initial phase as would
Canadian government securities and GSE debt securities.\6\
---------------------------------------------------------------------------
\5\ This would include but not be limited to Government
securities and GSE debt securities.
\6\ The government securities initially excluded would be
evaluated for possible inclusion in STANS as appropriate models are
developed.
---------------------------------------------------------------------------
Currently, government securities deposited as collateral to satisfy
margin requirements are priced on a nightly basis and are assigned a
value equal to their current market value less an applicable haircut
based on the term to maturity. While this method of valuing collateral
has generally served OCC well in the past, OCC believes analyzing
cleared positions and margin assets as a single portfolio using STANS
provides a more accurate valuation of the Clearing Members' securities
deposited as collateral in relation to other account positions. As when
OCC began including common stocks and ETFs in the STANS calculation,
OCC believes phasing in government securities would align risk-
management techniques utilized to manage market risk of cleared
positions, for example for Treasury futures contracts, with those
techniques used to value margin deposits.
The proposed inclusion of government securities into STANS would be
implemented using an approach similar to that used for adding common
stocks and ETFs. The value of the securities deposited in a Clearing
Member's account would be determined along with the risk on the margin
assets on a portfolio basis with reference to the volatility and
correlation of each deposited security to the other positions in the
account. Given the conservative nature of the current haircuts applied
to deposits of government securities, OCC anticipates a modest increase
in their collateral valuation should this change be implemented.
As a part of this proposal, OCC would apply a portfolio specific
adjustment factor when determining whether sufficient margin excess
resides in an account. This would enable OCC to release margin
collateral to a Clearing Member on an intraday basis. The adjustment
factor is account and security specific and is determined by
approximating the change in margin requirement caused by depositing or
withdrawing a particular security from the Clearing Member's account
based on the risk characteristics of that security and its consequent
assessed value. OCC believes this process would provide a more accurate
projection of the margin impact of collateral withdrawals and
substitutions on a Clearing Member's account. It is currently used to
analyze the impact of substitutions and withdrawals of equity
collateral within the STANS Monte Carlo simulations.\7\
---------------------------------------------------------------------------
\7\ OCC believes the approach currently used to assess the
impact of collateral substitutions and withdrawals represents an
improvement over that outlined in File No. SR-OCC-2007-20.
Interpretation and Policy .01 under Rule 608 generally provides that
OCC may specify procedures from time-to-time to assess the impact of
collateral withdrawals and substitutions.
---------------------------------------------------------------------------
OCC's Rule 601, ``Margin Requirements'' already provides that
margin assets in the form of securities may be incorporated into the
Monte Carlo calculations as an alternative to valuing such assets under
Rule 604, ``Form of Margin Assets''. In connection with incorporating
common stocks and ETFs into the STANS calculation, OCC adopted
Interpretation and Policy .06 under Rule 601 to clarify that margin
assets in the form of common stocks and ETFs would be included in the
Monte Carlo simulations described in Rule 601 for purposes of
determining the minimum expected liquidating value of an account with
other margin assets being valued as provided for under Rule 604.\8\ OCC
now proposes broadening the interpretation to provide that OCC may
designate those margin assets which, if deposited into a Clearing
Member's account, will be valued as provided in Rule 601 rather than
Rule 604. This change is intended to facilitate OCC's proposal
incorporate certain government securities into the STANS margin
calculation process.
---------------------------------------------------------------------------
\8\ Rule 604(f) provides that, in lieu of the valuations
provided for in Rule 604, OCC may elect to value any or all margin
assets in the form of securities pursuant to Rule 601.
---------------------------------------------------------------------------
OCC believes the proposed rule changes are consistent with the
requirements of Section 17A of the Act \9\ and the rules and
regulations thereunder because the proposed rule changes would promote
accuracy in the clearance and settlement of cleared contracts and in
the risk assessments relative thereto, and would promote efficiency and
eliminate unnecessary costs to investors by determining margin
requirements with better precision, and, in general, to protect
investors and the public interest. The change accomplishes these
purposes by more accurately valuing collateral deposits.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------
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 relating to the proposed rule change have not been
solicited or received. OCC will notify the Commission of any written
comments received by OCC.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within forty-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 or disapprove 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. Comments may be submitted by any of
the following methods:
[[Page 55621]]
Electronic Comments
Use the Commissions Internet comment form (http://www.sec.gov/rules/sro.shtml) or
Send an e-mail to [email protected]. Please include
File Number SR-OCC-2010-14 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Elizabeth
M. Murphy, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2010-14. This
file number should be included on the subject line if e-mail 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 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 20549-1090, on official business days
between the hours of 10 a.m. and 3 p.m. Copies of such filings will
also be available for inspection and copying at the principal office of
the OCC and on OCC's Web site at http://www.optionsclearing.com/about/publications/bylaws.jsp.
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-2010-14
and should be submitted on or before October 4, 2010.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\10\
---------------------------------------------------------------------------
\10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-22701 Filed 9-10-10; 8:45 am]
BILLING CODE 8010-01-P