Federal Register / Vol. 60, No. 248 / Wednesday, December 27, 1995 / Notices 67005

1 15 U.S.C. 78s(b)(1) (1988).

2Securities Exchange Act Release No. 36197,

International Series Release No. 850 (September 7,

1995), 60 FR 47633.

3OCC By-law, Article I.N. (2) employs the term

‘‘appropriate self-regulatory body’’ as defined in the

Supplementary Instructions re Completion of the

Joint Regulatory Financial Questionnaire to refer to

the government agency or self-regulatory authority

primarily responsible for regulating the activities of

a Canadian Clearing Member.

4 17 CFR 240.15c3–1.

5The Supplementary Instructions are issued by

the Investment Dealers Association of Canada and

provide additional guidance for securities firms in

connection with the preparation of the Joint

Regulatory Financial Questionnaire and Report.

6The JRFQ&R is a financial reporting form which

Canadian securities firms are required to prepare

and submit to appropriate Canadian regulatory

authorities and provincial exchanges to advise them

of such firms’ financial condition.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street NW,

Washington, DC 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 provisions of

5 U.S.C. 552, will be available for

inspection and copying in the

Commission’s Public Reference Section,

450 Fifth Street NW, Washington, DC

20549. Copies of such filing will also be

available for inspection and copying at

the principal office of the abovementioned self-regulatory organization.

All submissions should refer to the file

number SR–ISCC–95–05 and should be

submitted by January 17, 1995.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–31309 Filed 12–26–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36606; International Series

Release No. 905; File No. SR–CC–95–11]

Self-Regulatory Organizations; The

Options Clearing Corporation; Order

Approving a Proposed Rule Change

Modifying the Capital Computation

Formula and Reporting Requirements

Applicable to Canadian Clearing

Members of The Options Clearing

Corporation

December 20, 1995.

On July 13, 1995, The Options

Clearing Corporation (‘‘OCC’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’) a

proposed rule change (File No. SR–

OCC–95–11) pursuant to Section

19(b)(1) of the Securities and Exchange

Act of 1934 (‘‘Act’’).1 Notice of the

proposal was published in the Federal

Register on September 13, 1995.2 No

comment letters were received. For the

reasons discussed below, the

Commission is granting approval of the

proposed rule change.

I. Description of the Proposal

OCC is modifying its rules concerning

the financial requirements of Canadian

clearing members, including the capital

computation formula and reporting

requirements applicable to Canadian

clearing members, to reflect revisions to

the capital computation and reporting

standards recently adopted by various

Canadian regulatory authorities. OCC’s

rules allow Canadian clearing members

to submit required financial reports in

accordance with the accounting and

reporting standards of their appropriate

self-regulatory body.3 In monitoring

Canadian clearing members’ compliance

with OCC financial requirements, OCC

converts this financial information into

a form consistent with Rule 15c3–1

under the Act.4

The capital formula applied under

Canadian securities regulations to

Canadian securities firms has been

revised and incorporated into a new

standard report format. The prior capital

formula applied a minimum capital

requirement, as assessed by a working

capital computation (i.e., total capital

less nonallowable assets), based upon

volume of business determined by a

percentage of adjusted liabilities. The

new capital formula continues to be

based on a working capital computation

minus certain charges, including

charges that reflect the risk of

proprietary securities held in inventory.

However, the new capital formula

replaces the concept of adjusted

liabilities with revised definitions of

allowable assets and margin charges that

are intended to reflect the credit

worthiness of counterparties and the

economic substance of transactions.

The report format used by Canadian

securities firms to report their capital

computation also has been revised.

Accordingly, OCC is changing its

financial requirements and reporting

rules to conform them to the revised

capital formula and reporting format.

Specifically, the prior Interpretations

and Policies (‘‘Interpretation’’) .01 to

OCC Rule 301, regarding initial

financial requirements, provided that a

Canadian clearing member that

commenced doing business as a broker

or dealer within twelve months prior to

its admission to OCC clearing

membership must have maintained

‘‘initial net free capital,’’ as defined in

the Supplementary Instructions re

Completion of the Joint Regulatory

Financial Questionnaire

(‘‘Supplementary Instructions’’),5 of not

less than ten percent of such clearing

member’s ‘‘adjusted liabilities,’’ as

defined in the Supplementary

Instructions, until the later of (i) three

months after its admission to OCC

clearing membership or (ii) twelve

months after it commenced doing

business as a broker or dealer.

Interpretation .01 to OCC Rule 302,

regarding minimum net capital

requirements, provided that a Canadian

clearing members must have maintained

net free capital, as defined in the

Supplementary Instructions, of not less

than the amount of net free capital that

would be required of such clearing

member under Section 100.2 of the ByLaws of the Investment Dealers

Association of Canada (‘‘IDAC’’) if the

clearing member was a member of the

IDAC.

As amended, Interpretation .01 to

Rule 301 requires a Canadian clearing

member to maintain an initial ‘‘early

warning reserve,’’ as determined in

accordance with the Joint Regulatory

Financial Questionnaire and Report

(‘‘JRFQ&R)’’),6 of not less than $1,

000,000 (U.S.) for the same period as

previously required. The amended

Interpretation .01 to Rule 302 will

provide that the minimum net capital

requirement of a Canadian clearing

member is the early warning reserve, as

determined under the JRFQ&R, in an

amount not less than the greater of

$750,000 (U.S.) or 2% of such Canadian

clearing member’s total margin

requirements as determined in

accordance with the JRFQ&R.

Application of the early warning reserve

as determined under the JRFQ&R also

replaces the use of the net free capital

formula as determined under the

Interpretations to OCC Rules 303 and

304, regarding early warning notice and

restrictions on distributions.

Finally, in connection with OCC’s

financial reporting requirements, each

Canadian clearing member now is

required to file its JRFQ&R with OCC on

a monthly basis except as provided in

the Interpretations to Rule 306. The

JRFQ&R replaces the Joint Industry

Monthly Financial Report which was

previously required under the
67006 Federal Register / Vol. 60, No. 248 / Wednesday, December 27, 1995 / Notices

7 15 U.S.C. 78q–1(b)(3)(F) (1988).

8 17 CFR 240.15c3–1.

9 17 CFR 200.30–3(a)(12) (1994).

1 15 U.S.C. 78s(b)(1) (1988).

2Letter from Michael G. Vitek, OCC, to Jerry W.

Carpenter, Assistant Director, Division of Market

Regulation, Commission (December 19, 1995).

3The Commission has modified the text of the

summaries prepared by OCC.

4For a detailed description of OCC’s procedures

for processing late option exercise notices on nonexpiring option contracts and amendments to the

late exercise fee schedule cut-off times, refer to

Securities Exchange Act Release Nos. 29390 (July 1,

1991), 56 FR 31454 [File No. SR–OCC–90–3] (order

approving procedures for processing late exercise

notices) and 33247 (November 24, 1993), 58 FR

63419 [SR–OCC–93–2] (order approving changes to

OCC’s late exercise feel schedule cut-off times).

5The term ‘‘exchange’’ is defined in Article I,

Section E(4) of OCC’s by-laws as a national

securities exchange or a national securities

association that has qualified for participation in

OCC pursuant to the provision of Article VII of

OCC’s by-laws.

Interpretations to OCC’s financial

reporting rule.

II. Discussion

Section 17A(b)(3)(F) 7 of the Act

requires 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 and to

foster cooperation and coordination

with persons engaged in the clearance

and settlement of securities

transactions. The Commission believes

OCC’s proposed rule change is

consistent with the requirements of

Section 17A(b)(3)(F) because the

proposal conforms OCC’s rules

pertaining to Canadian clearing

members to the revised capital

computation and reporting standards

adopted by various Canadian regulatory

authorities. OCC allows Canadian

clearing members to submit required

financial reports to OCC in accordance

with the accounting and reporting

standards of their appropriate Canadian

self-regulatory body. OCC then converts

this financial information into a form

consistent with Rule 15c3–1 under the

Act 8 in order to monitor Canadian

clearing member compliance with OCC

financial requirements. As a result of

this monitoring scheme, conformity of

OCC rules to the current computation

and reporting standards of Canadian

regulatory authorities is critical to the

efficient and proper monitoring of

Canadian clearing members’ compliance

with OCC financial requirements. The

Commission believes the proposed rule

change should provide consistency

between OCC’s rules concerning

Canadian clearing members’ financial

requirements and the capital

computation and reporting standards

adopted by Canadian regulatory

authorities and thereby should help

assure the safeguarding of securities and

funds which are in the custody or

control of OCC or for which it is

responsible and should foster

cooperation and coordination with

persons engaged in the clearance and

settlement of securities transactions.

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–95–11) be, and hereby is,

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–31307 Filed 12–26–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36607; File No. SR–OCC–

95–14]

Self-Regulatory Organizations; The

Options Clearing Corporation; Notice

of Filing of a Proposed Rule Change

Relating to the Processing of Late

Exercise Requests for Eligible Option

Contracts

December 20, 1995.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

September 15, 1995, The Options

Clearing Corporation (‘‘OCC’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change (File No. SR–

OCC–95–14) as described in Items I, II

and III below, which Items have been

prepared primarily by OCC. On

December 19, 1995, OCC filed an

amendment to the proposed rule change

to clarify certain language in the

proposal.2 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

The purpose of the proposed rule

change is to amend OCC Rule 801(e)

pertaining to late exercise of option

contracts by changing the cut-off times

for filing a late exercise notice and by

eliminating any references to trading

volume. In addition, the proposed rule

change would revise OCC Rule 801(a) to

provide expressly for the submission of

exercise instructions through electronic

means.

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.3

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

The primary purpose of the proposed

rule change is to amend OCC Rule

801(e) regarding late exercises by

changing the cut-off times for filing a

late exercise notice and by eliminating

any references to trading volume. the

proposed rule change also seeks to

modify OCC Rule 801(a) to provide

expressly for the submission of exercise

notices through electronic means.

OCC Rule 801(e) currently permits

OCC clearing members to file, revoke, or

modify exercise notices after the 7:00

P.M. (all time references are Central

Time unless stated otherwise) deadline

for the purpose of correcting bona fide

errors. Once a late instruction is

accepted, Rule 801(e) requires the

clearing member submitting an

instruction to pay a late filing fee and

explain in writing the error that cause

the late submission of the instruction.

The filing fees for late instructions are

imposed on a graduated fee schedule

with variable cut-off times. The earlier

that a late exercise notice is submitted

the easier and less costly it is for OCC

to process the request.4

OCC clearing members have requested

that OCC provide them with data from

nightly processing earlier on the night of

process. Presently, Rule 801(e) requires

OCC to wait until 10:00 P.M. to begin

critical processing even if it has

received all necessary data from

exchanges 5 and clearing members

earlier in the night. Due to the many

technical improvements implemented

by the exchanges in recent years, the

exchanges now send daily trading data

to OCC much earlier. Thus, there are