[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'') <SUP>1</SUP>, 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.<SUP>2</SUP>
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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).<SUP>3</SUP> 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 <SUP>4</SUP> 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,<SUP>5</SUP> 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