Federal Register / Vol. 76, No. 69 / Monday, April 11, 2011 / Notices 20063 

8 15 U.S.C. 78s(b)(3)(A). 

9 17 CFR 240.19b–4(f)(6). When filing a proposed 

rule change pursuant to Rule 19b–4(f)(6) under the 

Act, an exchange is required to give the 

Commission written notice of its intent to file the 

proposed rule change, along with a brief description 

and text of the proposed rule change, at least five 

business days prior to the date of filing of the 

proposed rule change, or such shorter time as 

designated by the Commission. The Commission 

notes that the Exchange has satisfied this 

requirement. 

10 17 CFR 240.19b–4(f)(6)(iii). 

11 Id. 

12For the purposes only of waiving the operative 

delay of this proposal, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

13 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.15c3–1. 

3Securities Exchange Act Release No. 63623 (Dec. 

30, 2010), 76 FR 0602. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The proposed rule change does not 

impose any burden on competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange has not solicited, and 

does not intend to solicit, comments on 

this proposed rule change. The 

Exchange has not received any 

unsolicited written comments from 

members or other interested parties. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate if 

consistent with the protection of 

investors and the public interest, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act 8 and Rule 19b– 

4(f)(6) thereunder.9

A proposed rule change filed under 

Rule 19b–4(f)(6) normally may not 

become operative prior to 30 days after 

the date of filing.10 However, Rule 19b– 

4(f)(6) 11 permits the Commission to 

designate a shorter time if such action 

is consistent with the protection of 

investors and the public interest. The 

Exchange has requested that the 

Commission waive the 30-day operative 

delay. 

The Commission has considered the 

Exchange’s request to waive the 30-day 

operative delay. The Commission 

believes that waiving the 30-day 

operative delay is consistent with the 

protection of investors and the public 

interest, as it will allow the pilot 

program to continue uninterrupted, 

thereby avoiding the investor confusion 

that could result from a temporary 

interruption in the pilot program.12 For 

this reason, the Commission designates 

the proposed rule change to be operative 

upon filing. 

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

change should be approved or 

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, as amended, is consistent with 

the Act. Comments may be submitted by 

any of the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–ISE–2011–17 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–ISE–2011–17. 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 Room, 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 filing 

also will be available for inspection and 

copying at the principal offices of the 

Exchange. 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–ISE– 

2011–17, and should be submitted on or 

before May 2, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–8527 Filed 4–8–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–64181; File No. SR–OCC– 

2010–19] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Order 

Approving a Proposed Rule Change 

Relating to Stock Loan Programs 

April 5, 2011. 

I. Introduction 

On December 16, 2010, The Options 

Clearing Corporation (‘‘OCC’’) filed with 

the Securities and Exchange 

Commission a proposed rule change 

pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’).1 The proposed rule change 

clarifies the regulatory treatment under 

Rule 15c3–1 2 of collateral and margin 

posted by clearing members 

participating in stock loan transactions 

through OCC’s Stock Loan/Hedge 

Program or Market Loan Program. The 

proposed rule change was published for 

comment in the Federal Register on 

January 5, 2011.3 No comment letters 

were received. This order approves the 

proposed rule change. 

II. Description of the Proposal 

A. Background 

OCC’s Stock Loan/Hedge Program, 

provided for in Article XXI of OCC’s ByVerDate Mar<15>2010 17:49 Apr 08, 2011 Jkt 223001 PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 E:\FR\FM\11APN1.SGM 11APN1

srobinson on DSKHWCL6B1PROD with NOTICES
20064 Federal Register / Vol. 76, No. 69 / Monday, April 11, 2011 / Notices 

4A clearing member participating in the Market 

Loan Program is obligated to OCC as principal with 

respect to transactions effected by its customers that 

are non-clearing members of a trading platform. 

5With respect to both the Stock Loan/Hedge 

Program and the Market Loan Program, the loaned 

securities are moved to the account of the borrower 

against cash collateral (normally 102%) through the 

facilities of The Depository Trust Company (‘‘DTC’’). 

DTC notifies OCC that the movement has occurred 

at the time the transaction is submitted for 

clearance. The securities are returned to the lender 

against return of the cash collateral through the 

same mechanism. 

6This OCC margin requirement is in addition to 

the cash collateral that is transferred to the stock 

lender and may be deposited in any form 

constituting acceptable margin collateral under 

OCC Rule 604. 

7OCC does not calculate risk margin on stock 

loan positions and stock borrow positions 

separately from risk margin on options positions 

carried in the same account. 

8Securities Exchange Act Release No. 59036 (Dec. 

1, 2008), 73 FR 74554 (Dec. 8, 2008). 

9The text of the proposed amendment to 

Interpretation .05 can be found at http:// 

www.optionsclearing.com/components/docs/legal/ 

rules_and_bylaws/sr_occ_10_19.pdf. 

10 15 U.S.C. 78q–1(b)(3)(F). 

11Supra note 8. 

12 15 U.S.C. 78q–1. 

Laws and Chapter XXII of OCC’s Rules, 

provides a means for OCC clearing 

members to submit broker-to-broker 

stock loan transactions to OCC for 

clearance. Broker-to-broker transactions 

are independently-executed stock loan 

transactions that are negotiated directly 

between two OCC clearing members. 

OCC’s Market Loan Program, provided 

for in Article XXIA of OCC’s By-Laws 

and Chapter XXIIA of OCC’s Rules, 

accommodates securities loan 

transactions executed through electronic 

trading platforms that match lenders 

and borrowers on an anonymous basis. 

Anonymous stock loan transactions are 

initiated when a lender or borrower, 

which is either an OCC clearing member 

participating in the Market Loan 

Program or a non-clearing member that 

has a clearing relationship with an OCC 

clearing member participating in the 

Market Loan Program, accepts a bid/ 

offer displayed on a trading platform.4

When a stock loan transaction is 

submitted to and accepted by OCC for 

clearance, OCC substitutes itself as the 

lender to the borrower and as the 

borrower to the lender thus serving a 

function for the stock loan market 

similar to the one it serves for the listed 

options market. OCC guarantees the 

future daily mark-to-market payments, 

which are effected through OCC’s cash 

settlement system, between the lending 

clearing member and borrowing clearing 

member and guarantees the return of the 

loaned stock to the lending clearing 

member and the return of the collateral 

to the borrowing clearing member upon 

close-out of the stock loan transaction.5

One advantage of submitting stock loan 

transactions to OCC is that the stock 

loan and stock borrow positions then 

reside in the clearing member’s options 

account at OCC and, to the extent that 

they offset the risk of options positions 

carried in the same account, may reduce 

the clearing member’s margin 

requirement in the account. OCC’s risk 

is, in turn, reduced by having the 

benefit of the hedge. 

One of the tools that OCC uses to 

manage its exposure to stock loan 

transactions is the margin that OCC 

calculates and collects with respect to 

each account of a clearing member.6

Such margin consists of a mark-tomarket component that is based on the 

net asset value of the account (i.e., the 

cost to liquidate the account at current 

prices). A second component of such 

margin is the risk component (‘‘Risk 

Margin’’) determined by OCC’s 

proprietary margin system based on the 

net risk of all open positions carried in 

the account, including stock loan 

positions as well as options positions.7

An additional margin requirement 

(‘‘Additional Margin’’), which is solely 

applicable to stock loan transactions, 

arises where the collateral provided by 

the borrowing clearing member is 

greater than the current market value of 

the loaned stock. For example, in a 

stock loan transaction where the 

borrowing clearing member is required 

to provide collateral equal to 102% of 

the current market value of the loaned 

stock, OCC will charge the 

corresponding lending clearing member 

an Additional Margin amount equal to 

the 2% excess collateral and will credit 

the borrowing clearing member an equal 

amount. The Additional Margin charge/ 

credit is designed to provide OCC with 

resources so it can fully compensate a 

party to a stock loan transaction in the 

event of a counterparty default where 

the loaned stock or collateral held by 

the non-defaulting party is worth less 

than the value of the collateral or loaned 

stock exchanged. 

B. Description of Rule Change 

In December 2008, the Commission 

approved an OCC proposed rule change 

that memorialized OCC’s understanding 

that where stock loan transactions are 

submitted to OCC for clearance through 

the Stock Loan/Hedge Program, any 

Additional Margin that a clearing 

member is required to deposit with OCC 

will be treated the same as any other 

portion of the OCC margin deposit 

requirement and therefore will not 

constitute an unsecured receivable that 

would otherwise be required to be 

deducted from such clearing member’s 

net capital for purposes of Rule 15c3– 

1.8

Pursuant to this rule change, OCC is 

expanding the prior interpretive relief to 

make clear that: (i) clearing members are 

not required to take a net capital 

deduction with respect to any excess of 

the collateral over the market value of 

the loaned stock and (ii) the interpretive 

relief also applies to stock loan 

transactions submitted to OCC for 

clearance through the Market Loan 

Program. As explained above, any overcollateralization of the loaned stock will 

be secured and offset by Additional 

Margin charges/credits applied by OCC. 

Therefore, any such excess collateral on 

loaned stock also would not be deemed 

to constitute an unsecured receivable for 

purposes of Rule 15c3–1. 

In connection with the abovereferenced initiatives, OCC will amend 

Interpretation .05 to OCC Rule 601 to 

reflect the regulatory treatment under 

Rule 15c3–1 of collateral and margin 

posted by clearing members 

participating in stock loan transactions 

through the Stock Loan/Hedge Program 

and/or Market Loan Program.9

III. Discussion 

Section 17A(b)(3)(F) of the Act 

requires, among other things, that the 

rules of a clearing agency be designed to 

assure the safeguarding of securities and 

funds which are in the custody or 

control of the clearing agency or for 

which it is responsible.10 OCC’s rule 

change to provide additional 

interpretive relief with respect to the net 

capital treatment of stock loan 

transactions extends OCC’s previous 

changes to its Stock Loan/Hedge 

Program 11 and is similarly designed to 

enhance OCC’s ability to assure that it 

has collected sufficient margin from its 

members in relation to such members’ 

activity. The new interpretive relief 

should continue to provide OCC with 

the ability to manage the risk of a 

clearing member’s stock loan activity 

and should continue to enable OCC to 

protect itself and its members from 

potential losses associated with the 

stock loan program. Accordingly, the 

Commission finds that the proposed 

rule change is designed to assure the 

safeguarding of securities and funds 

which are in OCC’s custody or control 

or for which OCC is responsible. 

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act and in 

particular Section 17A of the Act 12 and 

the rules and regulations thereunder. 


srobinson on DSKHWCL6B1PROD with NOTICES
Federal Register / Vol. 76, No. 69 / Monday, April 11, 2011 / Notices 20065 

13 15 U.S.C. 78s(b)(2). 

14 In approving the proposed rule change, the 

Commission considered the proposal’s impact on 

efficiency, competition and capital formation. 

15 U.S.C. 78c(f). 

15 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 62251 

(June 10, 2010), 75 FR 34183 (June 16, 2010) (Order 

Approving File No. SR–FINRA–2010–025). 

4See Securities Exchange Act Release No. 62883 

(September 10, 2010), 75 FR 56608 (September 16, 

2010) (Order Approving File No. SR–FINRA–2010– 

033). 

5 15 U.S.C. 78o–3(b)(6). 

6 15 U.S.C. 78s(b)(3)(A). 

7 17 CFR 240.19b–4(f)(6). When filing a proposed 

rule change pursuant to Rule 19b–4(f)(6) under the 

Continued 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,13 that the 

proposed rule change (File No. SR– 

OCC–2010–19) be and hereby is 

approved.14

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–8473 Filed 4–8–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–64192; File No. SR–FINRA– 

2011–015] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Extend the Effective 

Date of the Trading Pause Pilot 

April 5, 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 30, 

2011, Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I and 

II below, which Items have been 

prepared by FINRA. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing to amend FINRA 

Rule 6121 (Trading Halts Due to 

Extraordinary Market Volatility) to 

extend the effective date of the single 

stock circuit breaker pilot program until 

the earlier of August 11, 2011 or the 

date on which a limit up/down 

mechanism to address extraordinary 

market volatility, if adopted, applies to 

the pilot securities. 

The text of the proposed rule change 

is available on FINRA’s Web site at 

http://www.finra.org, at the principal 

office of FINRA and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

FINRA 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. FINRA has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

FINRA proposes to amend FINRA 

Rule 6121.01 to extend the effective date 

of the pilot by which such rule operates, 

which is currently scheduled to expire 

on April 11, 2011, until the earlier of 

August 11, 2011 or the date on which 

a limit up/down mechanism to address 

extraordinary market volatility, if 

adopted, applies to the pilot securities. 

FINRA Rule 6121.01 provides that if 

a primary listing market has issued an 

individual stock trading pause under its 

rules, FINRA will halt trading otherwise 

than on an exchange in that security 

until trading has resumed on the 

primary listing market. The pilot was 

developed and implemented as a 

market-wide initiative by FINRA and 

other self-regulatory organizations 

(‘‘SROs’’) in consultation with 

Commission staff, and is currently 

applicable to the S&P 500® Index,3 the 

Russell 1000® Index and a pilot list of 

Exchange Traded Products,4 together, 

the ‘‘pilot securities.’’ 

The extension proposed herein would 

allow the pilot to continue to operate 

without interruption while FINRA and 

the other SROs further assess the effect 

of the pilot on the marketplace and 

whether other initiatives should be 

adopted in lieu of the current pilot. 

FINRA has filed the proposed rule 

change for immediate effectiveness and 

has requested that the SEC waive the 

requirement that the proposed rule 

change not become operative for 30 days 

after the date of the filing, such that the 

pilot can continue to operate without 

interruption for the benefit of the 

marketplace and the investing public. 

2. Statutory Basis 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(6) of the Act,5 which 

requires, among other things, that 

FINRA rules must be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade and, in 

general, to protect investors and the 

public interest. FINRA believes that the 

proposed rule change meets these 

requirements in that it promotes 

uniformity across markets concerning 

decisions to pause trading in a security 

when there are significant price 

movements. 

Additionally, extension of the pilot 

until the earlier of August 11, 2011 or 

the date on which a limit up/down 

mechanism to address extraordinary 

market volatility, if adopted, applies to 

the pilot securities, would allow the 

pilot to continue to operate without 

interruption while FINRA and the other 

SROs further assess the effect of the 

pilot on the marketplace and whether 

other initiatives should be adopted in 

lieu of the current pilot. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

FINRA does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate if 

consistent with the protection of 

investors and the public interest, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act 6 and Rule 19b– 

4(f)(6) thereunder.7


srobinson on DSKHWCL6B1PROD with NOTICES