[Federal Register Volume 65, Number 238 (Monday, December 11, 2000)]
[Notices]
[Page 77413]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-31380]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43668; File No. SR-OCC-99-15]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Granting Approval of Proposed Rule Change Relating to Clearing 
Member Affiliates

December 4, 2000.
    On November 2, 1999, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change (File No. SR-OCC-99-15) and on August 11, 2000, 
amended the proposed rule change pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'')\1\ Notice of the proposal was 
published in the Federal Register on September 15, 2000.\2\ No comment 
letters were received. For the reasons discussed below, the Commission 
is granting approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 43276, (September 11, 
2000), 65 FR 56015.
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I. Description

    The principal purpose of the proposed rule change is allow certain 
affiliates of a clearing member to be designated as non-customers under 
the Commission's hypothecation rules \3\ so that the affiliates may 
have their transactions and positions commingled in their clearing 
member's firm account and/or proprietary X-M account at OCC for the 
purpose of receiving more favorable clearing margin treatment.\4\ The 
proposed rule change creates a definition of Member Affiliates that 
consists of the relevant portion of the existing definition of Related 
Person in OCC's By-Laws. (For the sake of economy of expression and 
consistency, OCC proposes a replace that portion of the Related Person 
definition used to define Member Affiliate with the term Member 
Affiliate.) The proposed rule change then modifies the definition of 
Non-Customer to include a Member Affiliate that has executed a non-
conforming subordination agreement \5\ that has been approved by the 
clearing member's designated examining authority.
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    \3\ 17 CFR 240.8c-1 and 240.15c2/1.
    \4\ See also no-action letter from Michael A. Macchiaroli, 
Associate Director, Division of Market Regulation, Commission, to 
William H. Navin, Executive Vice President and General Counsel, OCC, 
(June 15, 2000).
    \5\ Non-conforming subordination agreements are subordination 
agreements that do not meet the requirements of Appendix D of Rule 
15c3-1.
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    Additionally, the proposed rule change modifies the definition of 
Related Person to eliminate redundancies and to more closely parallel 
17 CFR 1.3(y), which defines ``proprietary account'' for the purposes 
of the Commodity Exchange Act's regulations.\6\ The proposed rule no 
longer refers to spouses of ``any such person'' (i.e., any officer, 
director, or general or special partner) which was redundant because 
the rule already covers spouses of ``any non-customer of the clearing 
member,'' and the definition of Non-Customer includes officers, 
directors, or general or special partners. Additionally, in order to 
conform OCC rules with Section 1.3(y)'s definition of ``proprietary 
account,'' the proposed rule change clarifies that not only are spouses 
and minor dependents of non-customers Related Persons but also that the 
spouses and minor dependents of certain employees are also Related 
Persons.
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    \6\ As defined, a Related Person is essentially a person whose 
account would be a ``proprietary account'' under the rules of the 
Commodity Futures Trading Commission, but who is nevertheless a 
``customer'' for purposes of the Commission's hypothecation rules 
cited above. Market Makers who are Related Persons of a clearing 
member are deemed to be Associated Market Makers and are excluded 
from the Combined Market Maker Account under Article VI, Section 
3(c) of OCC's By-Laws.
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II. Discussion

    Section 17A(b)(3)(F) \7\ of the Act requires 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. For the reasons set forth below, the 
Commission believes that OCC's proposed rule change is consistent with 
OCC's obligations under the Act.
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    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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    The proposed rule change to add and modify several definitions so 
that affiliates may have their transactions and positions commingled in 
their clearing member's firm account and/or proprietary X-M account at 
OCC should result in a more accurate assessment of risk and a more 
appropriate margin requirement thus further assuring the safeguarding 
the securities and funds within OCC's control. In addition the proposed 
rule change should provide more consistency with respect to the 
interplay of the Commodity Exchange Act's regulations with OCC's rules.

III. 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 and the rules and regulations 
thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-OCC-99-15) be and hereby is 
approved.

    For the Commission by the Division of Market Regulations, 
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. 00-31380 Filed 12-8-00; 8:45 am]
BILLING CODE 8010-01-M