[Federal Register Volume 80, Number 77 (Wednesday, April 22, 2015)]
[Notices]
[Pages 22591-22593]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-09266]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74747; File No. SR-OCC-2015-03]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving Proposed Rule Change Concerning the Execution of an 
Agreement for Clearing and Settlement Services Between OCC and NASDAQ 
Futures, Inc.

April 16, 2015.
    On February 20, 2015, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change OCC-2015-03 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published for comment in 
the Federal Register on March 10, 2015.\3\ The Commission received no 
comments on the proposed rule change. This order approves the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 74432 (March 4, 2015), 
80 FR 12652 (March 10, 2015) (SR-OCC-2015-03).

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[[Page 22592]]

I. Description

    OCC proposes to execute an Agreement for Clearing and Settlement 
Services (``Clearing Agreement'') between OCC and NASDAQ Futures, Inc. 
(``NFX'') in connection with NFX's operation as a designated contract 
market (``DCM'') \4\ regulated by the Commodity Futures Trading 
Commission (``CFTC''). OCC will provide clearance and settlement 
services to NFX pursuant to the terms set forth in the Clearing 
Agreement. The rule change, as proposed, permits OCC to begin providing 
clearing and settlement services for NFX in the second quarter of 2015.
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    \4\ See http://www.cftc.gov/ucm/groups/public/@otherif/documents/ifdocs/nasdaqorderofreinstatement.pdf.
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    NFX previously operated as a DCM and cleared its futures contracts 
through OCC. As such, OCC and NFX had previously entered into a Second 
Amended and Restated Agreement for Clearing and Settlement Services 
(``Previous Agreement'') dated January 13, 2012.\5\ As of January 31, 
2014, NFX ceased operations as a contract market and became a dormant 
contract market under CFTC Regulations.\6\ As a result, the Previous 
Agreement was terminated pursuant to its terms \7\ and the clearing 
relationship between OCC and NFX terminated.
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    \5\ See Securities Exchange Act Release No. 66340 (February 7, 
2012), 77 FR 7621 (February 13, 2012) (SR-OCC-2012-02).
    \6\ See 17 CFR 40.1.
    \7\ More specifically, the Previous Agreement, in relevant part, 
stated that it would terminate if NFX terminates trading of all 
Cleared Contracts. See Section 19(b) of the Previous Agreement. See 
also note 5 supra.
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    On November 21, 2014, NFX was approved by the CFTC as a DCM.\8\ In 
connection with that approval, OCC proposes to provide the clearance 
and settlement services as described in the Clearing Agreement, which 
is substantially similar to the Previous Agreement with several 
differences discussed in more detail below. The Clearing Agreement has 
been amended to allow OCC more flexibility in determining which 
products it will clear based upon its conclusion that it is able to 
appropriately risk manage such products using commercially reasonable 
standards.\9\ More specifically, the following changes have been made:
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    \8\ See note 4 supra.
    \9\ See Sections 3(a) and 9 of the Clearing Agreement in which 
language has been added allowing such flexibility.
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    <bullet> Section 3(a) of the Clearing Agreement, ``General Criteria 
for Underlying Interests,'' has been amended to permit NFX to select 
the underlying interests that are the subject of currency futures, 
commodity futures, and/or futures options to be traded on NFX only if 
OCC is satisfied that it is able to appropriately risk manage the 
contract with the proposed underlying interest using commercially 
reasonable efforts.
    <bullet> Section 9 of the Clearing Agreement, ``Limitations of 
Authority and Responsibility,'' has been amended to specify that OCC 
shall have no responsibility to enforce standards relating to the 
conduct of trading on NFX unless OCC finds it reasonably necessary in 
order to appropriately risk manage the products that are being traded 
on NFX.
    In addition, the Clearing Agreement will also make several changes 
to the Previous Agreement, which include:
    <bullet> Section 3(c), ``Procedures for Selection of Underlying 
Interests,'' has been amended to state that NFX must submit a 
certificate for a new class of contracts not already listed or traded 
on NFX as soon as practicable (rather than ten days prior to the 
commencement of trading). It has also been amended to state that OCC 
will be obligated to use commercially reasonable efforts to authorize 
the clearance and settlement of such contracts as soon as practicable. 
In addition, the Clearing Agreement expressly obligates NFX to provide 
OCC with any additional information as requested by OCC from time to 
time that will assist OCC in identifying a new product proposed for 
clearing by NFX. OCC believes that these amendments to Section 3(c), 
related to the procedures for the selection of underlying interests, 
will ensure that OCC not only has the correct information needed to 
evaluate a proposed new product but that the information will be 
produced to OCC in a timely manner which will provide OCC sufficient 
time to evaluate the proposed new product.
    <bullet> Section 3(d), ``Notice of Additional Maturity or 
Expiration Dates,'' has been amended to state that, for a class of 
products previously certified, NFX may introduce a new maturity or 
expiration date that is in the cycle set forth in the certificate by 
providing notice to OCC through electronic means specified by OCC. The 
Previous Agreement required such notice to be sent to OCC only by email 
or facsimile.
    <bullet> A universal conforming change has been made to various 
sections in the Clearing Agreement to replace the term ``matched'' 
trades with ``confirmed'' trades to better describe trades that are 
processed for clearance and settlement.\10\
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    \10\ See Article I, Section 1(C)(28) of OCC's By-Laws. See also 
Sections 3(g), 6(a), 7, 19, and Schedule A, Section 1 of the 
Clearing Agreement.
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    <bullet> Section 5(a), ``Confirmed Trade Reports,'' has been 
amended to remove language discussing the possibility that NFX will 
provide OCC with a confirmed trade report on a real time basis as this 
capability is already captured in the language ``as the Corporation may 
reasonably prescribe.''
    <bullet> Section 5(c)(i) has been amended to include language that 
will allow OCC to determine the final settlement price for a futures 
contract in which the underlying interest is a cash-settled foreign 
currency if the organized market in which that foreign currency future 
is traded on, or the foreign currency itself, did not open or remain 
open for trading at or before the time in which the settlement price 
for such futures contract would ordinarily be determined. In addition, 
Section 5(c)(i) has been amended to include a reference to ``variance'' 
when listing factors that will allow OCC to determine a final 
reasonable settlement price, if not reported at the ordinary time of 
final settlement. OCC believes that these additions to the Clearing 
Agreement clarify the potential underlying interests in which NFX may 
introduce futures contracts and make the Clearing Agreement more 
precise.
    <bullet> Section 7, ``Acceptance and Rejection of Transactions in 
Cleared Contracts,'' has been amended to include a provision that will 
allow OCC, in accordance with its By-Laws, to reject transactions due 
to validation errors which will allow OCC to better manage its 
clearance and settlement obligations by expressly allowing it to reject 
transactions that do not contain complete terms. These validation 
errors include, for example, an incorrect Clearing Member, account, 
product or format.
    <bullet> Section 8, ``Non-Discrimination,'' has been amended to 
delete a provision restricting OCC from changing its By-Laws or Rules 
in any manner that may limit its obligations to clear and settle for 
NFX. In addition, a provision has been deleted requiring OCC to amend 
the Clearing Agreement in the event that OCC has made changes to its 
standard form agreement for clearing and settlement services. Section 8 
has also been amended to delete a provision stating OCC is required to 
consult with NFX and modify OCC's By-Laws or Rules to incorporate 
product design features specified by NFX for new products. OCC believes 
that these

[[Page 22593]]

provisions are no longer necessary as they limit OCC's ability to 
modify its By-Laws, Rules and agreements which may be necessary for OCC 
to fulfill its obligations as a clearing organization. OCC will, 
however, continue to be obligated to fulfill both the provisions of the 
Clearing Agreement and OCC's regulatory responsibilities. Section 8 has 
additionally been amended to delete an obligation for each party to 
provide the other with proposed rule changes. The elimination of this 
contractual obligation reflects the parties' determination that their 
respective obligations to post filed regulatory submissions on their 
public Web sites provides sufficient notice of such changes.
    <bullet> Section 11, ``Financial Requirements for Clearing 
Members,'' has been amended to delete a provision stating the specific 
financial responsibility standards OCC has with respect to its Clearing 
Members. This change was made to further streamline the Clearing 
Agreement given OCC's general obligation to remain consistent with OCC 
By-Laws and Rules.
    <bullet> Section 14, ``Programs and Projects,'' has been amended to 
eliminate a provision expressly requiring OCC to offer futures contract 
clearing terms to NFX that are no less favorable to the terms offered 
to other exchanges.
    <bullet> Sections 15 and 24 in the Previous Agreement, 
``Information Sharing'' and ``Quality Standards'' respectively, have 
been deleted in their entirety in an attempt to simplify the Clearing 
Agreement as the sections create unnecessary obligations on the parties 
and are duplicative of general regulatory responsibilities of both 
parties.
    <bullet> Section 18(b), ``Other Grounds for Termination,'' has been 
amended to include a provision that OCC may terminate the Clearing 
Agreement at any time so long as NFX is given 120 days prior written 
notice. The addition of this provision better balances the rights of 
both parties to terminate the Clearing Agreement at their discretion 
provided that proper notice is given as required by the Clearing 
Agreement.
    <bullet> Various administrative changes have been made throughout 
the document including, but not limited to, an amended legal name and 
description of NFX, updated references to sections within the document, 
and clean-up changes of duplicative terms.
    Finally, pursuant to the rule change, as approved, Schedule A of 
the Clearing Agreement, ``Description of Clearing and Settlement 
Services'' and Schedule B of the Clearing Agreement, ``Information 
Sharing,'' are being amended as follows:
    <bullet> Section (1) of Schedule A of the Clearing Agreement, 
``Trade Acceptance,'' has been updated to reflect current OCC 
operational requirements with respect to submission of confirmed 
trades.
    <bullet> Section (4) of Schedule A, ``Information for Clearing 
Members,'' has been amended to delete specific information sharing 
obligations of OCC to its Clearing Members and to state that the 
information provided to Clearing Members will be in accordance with 
OCC's By-Laws and Rules.
    <bullet> Section (I)(A) of Schedule B has been amended to delete 
specific references to information that OCC will provide to Clearing 
Members on a daily basis and instead adds a provision that OCC will 
provide NFX with its ``Data Distribution Service'' information for 
regulatory and financial purposes.
    <bullet> Section (I)(B) of Schedule B has been amended to delete 
certain information sharing provisions and to state that the 
information sharing obligations OCC continues to have may be satisfied 
by posting the required information on OCC's public Web site which 
streamlines the information sharing process.

II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \11\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that the proposed rule change is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to such 
organization. The Commission finds that the proposed rule change is 
consistent with Section 17A(b)(3)(F) of the Act,\12\ which requires, 
among other things, that the rules of a clearing agency be designed to 
promote the prompt and accurate clearance and settlement of securities 
transactions and, to the extent applicable, derivative agreements, 
contracts, and transactions, to assure the safeguarding of securities 
and funds which are in its custody or control or for which it is 
responsible, and, in general, to protect investors and the public 
interest. As approved, the Clearing Agreement will allow derivative 
contract trades executed on NFX to be cleared and settled at OCC, 
thereby ensuring that these trades will be subject to the comprehensive 
operational and risk management framework at OCC. In so doing, the 
Clearing Agreement, should reduce the costs and risks associated with 
clearing and settling NFX trades, which should in turn promote the 
prompt and accurate clearance and settlement of the NFX derivative 
contract transactions, better assure the safeguarding of related 
securities and funds in the custody and control of OCC, and better 
protect investors and the public interest.
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    \11\ 15 U.S.C. 78s(b)(2)(C).
    \12\ 15 U.S.C. 78q-1(b)(3)(F).
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III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \13\ and the 
rules and regulations thereunder.
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    \13\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
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    IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-OCC-2015-03) be, and it 
hereby is, approved.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-09266 Filed 4-21-15; 8:45 am]
BILLING CODE 8011-01-P