[Federal Register Volume 76, Number 67 (Thursday, April 7, 2011)]
[Notices]
[Pages 19512-19514]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8235]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64167; File No. SR-OCC-2011-03]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change to Allow for an Expansion of
OCC's Internal Cross-Margining Program to Include the Ability of a Pair
of Affiliated Clearing Members to Establish an Internal Non-Proprietary
Cross-Margining Account
April 1, 2011.
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 March 17, 2011, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change would expand OCC's internal cross-
margining program to permit a pair of affiliated clearing members to
establish a cross-margining account (``Internal Non-Proprietary Cross-
Margining Account'') in which securities and security futures that are
cleared by OCC in its capacity as a securities clearing agency may be
cross-margined with commodity futures and options on such futures that
are cleared by OCC in its capacity as a derivatives clearing
organization (``DCO'') registered with the Commodity Futures Trading
Commission (``CFTC'') under the Commodity Exchange Act (``CEA'').
[[Page 19513]]
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.\3\
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\3\ 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
In 2004, the CFTC and the Commission \4\ approved OCC's proposal to
create an ``internal cross-margining'' program under which an OCC
clearing member could elect to cross-margin a non-proprietary futures
account of a ``market professional'' (as defined in OCC's By-Laws) \5\
with a non-proprietary securities account containing positions of the
same market professional. At OCC, the securities and futures positions
of all market professionals with cross-margined accounts at the
clearing member are combined in a single Internal Non-Proprietary
Cross-Margining Account of the clearing member at OCC. The existing
program, which has operated successfully since 2004, requires that the
same clearing member clear the securities and futures positions. In
contrast, the existing cross-margining programs between OCC and other
DCOs such as the clearing division of the Chicago Mercantile Exchange
(``CME'') and ICE Clear U.S. permit cross-margining where the member of
the futures clearing organization is a different entity from its
affiliate that is an OCC clearing member. The purpose of this proposed
rule change is to expand the existing internal cross-margining program
in an analogous way so that it would permit an Internal Non-Proprietary
Cross-Margining Account to be maintained at OCC jointly by a pair of
affiliated clearing members that clear transactions in securities
options and in futures products through two different entities. In
order to participate, both OCC clearing members would have to be
affiliates of one another and would have to be registered as both a
futures commission merchant under the CEA and as a broker-dealer under
the Act.
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\4\ Securities Exchange Act Release No. 34-50509 (October 8,
2004), 69 FR 61289 (October 15, 2004).
\5\ A market professional could be a market-maker, specialist or
person acting in a similar capacity on a securities exchange, or a
member of a futures exchange trading for its own account. A non-
proprietary market professional is any market professional that is
required to be treated as a ``customer'' under the CEA, and
therefore excludes any market professional that is affiliated with
the carrying clearing member in a way that would cause its account
to be treated as a ``proprietary account'' under Section 1.3(y) of
the CFTC's regulations.
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OCC's current internal cross-margining program does not provide for
internal cross-margining accounts to be carried jointly by a pair of
affiliated clearing members because OCC did not believe in 2004 that
there was any clearing member demand for such a service. Recently,
however, OCC has learned that there is demand for such a service. Under
OCC's current proposal, two affiliated clearing members could jointly
maintain an Internal Non-Proprietary Cross-Margining Account. The
clearing member that normally clears transactions in securities options
would submit transactions in eligible securities options to the account
for clearance, and the clearing member that normally clears
transactions in futures products would submit transactions in eligible
futures products to the account for clearance.
OCC proposes to amend its current By-Laws and Rules governing
internal cross-margining to create rules similar to the rules of the
long-standing cross-margining program for affiliated clearing members
between OCC and CME, for example. In the case of the cross-margining
programs between OCC and other DCOs, there are two accounts at the
clearing level--one at each of the participating clearing
organizations. In the internal cross-margining program, there is no
need for two separate accounts, which would in any event be margined
together and for which the affiliated clearing members would in any
event be jointly and severally liable as they are for the two accounts
in the case of the OCC-CME program.
Article VI, Section 25(b) of OCC's By-Laws currently requires
clearing members to obtain a ``Market Professional's Agreement for
Internal Cross-Margining'' from each market professional whose
positions are included in an Internal Non-Proprietary Cross-Margining
Account. OCC proposes to use a modified form of this agreement for an
account held jointly by a pair of affiliated clearing members. The
proposed form of the agreement, titled ``Market Professional's
Agreement for Internal Cross-Margining (Affiliated Clearing Members)''
is attached as Exhibit 5A to this proposed rule change filing. The
existing ``Market Professional's Agreement for Internal Cross-
Margining'' applicable to the internal cross-margining program for
single clearing members has been retitled ``Market Professional's
Agreement for Internal Cross-Margining (Single Clearing Member)'' and
is attached as Exhibit 5B to this proposed rule change filing. In
addition to modifying the title to the form of the agreement applicable
to single clearing members, a sentence has been added at the end of
paragraph seven of that agreement to conform it to the corresponding
provision in the form of the agreement for affiliated clearing members.
OCC does not intend to require current participants in the internal
cross-margining program to obtain reexecuted agreements in updated form
because the modifications are clarifications only and not substantive
changes.
As in the case of the existing internal cross-margining program,
the Internal Non-Proprietary Cross-Margining Account would be treated
as a segregated futures account under Section 4d of the CEA and, in
accordance with Appendix B to Part 190 of the CFTC's regulations, would
be separately segregated from the regular segregated futures account
that an OCC clearing member may maintain under Article VI, Section 3(f)
of OCC's By-Laws. In order to expand the internal cross-margining
program to include accounts carried by pairs of affiliated clearing
members, OCC is requesting that the CFTC either issue a new or amended
order under Section 4d of the CEA.
Since it granted approval of the first cross-margining program in
1988,\6\ the Commission has found that cross-margining programs are
consistent with clearing agency responsibilities under Section 17A of
the Act\7\ and highly beneficial to the clearing organization, its
clearing members and the public. OCC believes that cross-margining
programs enhance clearing member and systemic liquidity, resulting in
lower initial margin deposits. They reduce the risk that a clearing
member will become insolvent in a distressed market and the
corresponding risk that one insolvency could lead to multiple
insolvencies in a ripple effect, and they enhance the security of the
clearing system.\8\
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\6\ Securities Exchange Act Release No. 34-26153 (October 3,
1988), 53 FR 39567 (October 7, 1988).
\7\ 15 U.S.C. 78q-1.
\8\ Securities Exchange Act Release No. 34-32708 (August 2,
1993), 58 FR 42586 (August 10, 1993).
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OCC would not implement the internal cross-margining program for
affiliated clearing members until such time after the CFTC has issued
an order
[[Page 19514]]
or amended order under Section 4d of the CEA as discussed above.
(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 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 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:
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-2011-03 on the
subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2011-03. 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 website viewing and
printing in the Commission's Public Reference Section, 100 F Street,
NE., Washington, DC 20549, 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 OCC and on OCC's Web
site at http://www.optionsclearing.com/components/docs/legal/rules_and_bylaws/sr_occ_11_03.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-2011-03
and should be submitted on or before April 28, 2011.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8235 Filed 4-6-11; 8:45 am]
BILLING CODE 8011-01-P