[Federal Register Volume 63, Number 140 (Wednesday, July 22, 1998)]
[Notices]
[Pages 39334-39335]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19437]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40205; File No. SR-0CC-97-12]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving a Proposed Rule Change Regarding Initial and Minimum 
Net Capital Requirements for Futures Commission Merchants

July 15, 1998.
    On July 15, 1997, The Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change (File No. SR-OCC-97-12) 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 February 19, 1998.\2\ No 
comment letters were received. For the reasons discussed below, the 
Commission is approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 39648 (February 11, 
1998), 63 FR 8509.
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I. Description

    The proposed rule change amends OCC's initial and ongoing minimum 
net capital requirements and early warning notice provisions to 
establish additional requirements for clearing members that are also 
registered futures commission merchants (``FCMs''). Currently, OCC's 
rules require its members to satisfy initial and ongoing minimum net 
capital requirements of $1,000,000 and $750,000, respectively.\3\ Under 
the proposed rule change, the initial and ongoing minimum net capital 
of OCC members that are also FCMs must exceed the greater of the 
following standards: OCC's current initial and ongoing minimum net 
capital requirements or that required by the clearing organization of 
the FCM member's designated self-regulatory organization (``DSRO'').\4\
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    \3\ OCC Rules 301 and 302.
    \4\ Robert C. Rubenstein from OCC in a letter dated September 3, 
1997, to the Commission stated that according to OCC, the terms 
clearing organization and SRO shall have the meanings ascribed to 
them in the General Regulation of the Commodity Exchange Act, 17 CFR 
1.3(d) and 17 CFR.1.3(ff) (1) and (2).
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    The proposed rule change also modifies OCC's early warning notice 
provisions to require OCC members that are also FCMs to notify OCC if 
that member's net capital falls below OCC's requirements or if its net 
capital falls below the minimum net capital required by the clearing 
organization of the FCM member's DSRO.

[[Page 39335]]

II Discussion

    Section 17A(b)(3)(F) of the Act \5\ requires that the rules of a 
clearing agency be designed to assure the safeguarding of securities 
and funds which are in its custody or control or for which it is 
responsible. The Commission believes that the proposed rule change is 
consistent with OCC's obligations under the Act because the proposed 
rule change increases the effectiveness of OCC's financial surveillance 
of its clearing members in situations where the clearing member's net 
capital falls below that level required by its futures clearing 
organization.
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    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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    Many of OCC's clearing members are also registered as FCMs under 
the Commodity Exchange Act and as such are subject to the financial 
reporting requirements and the early warning notice requirements of the 
Commodity Futures Trading Commission and of commodity DSROs. Because of 
differences in the initial and ongoing minimum net capital requirements 
used by the commodity regulatory organizations and those used by the 
securities regulatory organizations, a clearing member could fail to 
meet the net capital requirements of its DSRO and still satisfy the net 
capital requirements established by OCC. Consequently, a situation 
could occur where an FCM clearing member is required to give early 
warning notice to its commodity regulatory authority but nothing 
currently would require the clearing member to give notice to OCC. As a 
result, OCC could continue to clear trades without notice for a 
clearing member that may or may not be able to satisfy its financial 
obligations.
    Therefore, requiring a clearing member to satisfy the higher 
applicable net capital standard and to provide OCC with early warning 
notices when it fails to meet the net capital requirements set by its 
DSRO or by OCC should assist OCC in assessing the ongoing 
creditworthiness of its clearing members and also should help OCC to 
safeguard securities and funds in OCC's custody or control.

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 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-97-12) be and hereby is 
approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority. \6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-19437 Filed 7-21-98; 8:45 am]
BILLING CODE 8010-01-M