Document ID: SEC-2013-0087-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Options Clearing Corp.
Posted Date: 2013-01-16T05:00Z

[Federal Register Volume 78, Number 11 (Wednesday, January 16, 2013)]
[Notices]
[Pages 3483-3485]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-00795]

[[Page 3483]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68618; File No. SR-OCC-2012-801]

Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Advance Notice, as Modified by Amendment No. 1 
Thereto, in Connection With a Proposed Change To Enter Into an 
Unsecured, Committed Credit Agreement

January 10, 2013.
    Pursuant to Section 806(e)(1) of the Payment, Clearing, and 
Settlement Supervision Act of 2010 (``Clearing Supervision Act'') \1\ 
and Rule 19b-4(n)(1)(i),\2\ notice is hereby given that on December 18, 
2012, The Options Clearing Corporation (``OCC'') filed with the 
Securities and Exchange Commission (``Commission'') the advance notice 
described below. On December 21, 2012, OCC filed Amendment No. 1 to the 
advance notice.\3\ The advance notice as amended by Amendment No. 1 is 
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 on the advance notice and Amendment No. 1 from interested 
persons.
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(i).
    \3\ Amendment No. 1 corrects Item 2 of OCC's Form 19b-4 to 
indicate that ``[t]he proposed change was approved by the Board of 
Directors of OCC at a meeting held on July 24, 2012,'' rather than 
September 25, 2012.
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I. Clearing Agency's Statement of the Terms of Substance of the Advance 
Notice

    OCC is filing this advance notice in connection with a change to 
its operations (the ``Change'') in the form of entering into an 
unsecured, committed credit agreement (the ``Agreement'' or the 
``Facility''). The Facility would provide OCC with access to additional 
liquidity for working capital needs and general corporate purposes. The 
Facility would also help satisfy the liquidity requirement of the 
Commodity Futures Trading Commission's (``CFTC'') regulation Section 
39.11(e)(2).

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Advance Notice

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the advance notice and 
discussed any comments it received on the advance notice. 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 these statements.\4\
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    \4\ The Commission has modified the text of the summaries 
prepared by OCC.
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(A) Advance Notices Filed Pursuant to Section 806(e) of the Payment, 
Clearing and Settlement Supervision Act

Description of Change
    The proposed Change would provide OCC with access to an unsecured, 
committed credit facility in an aggregate principal amount not to 
exceed $25 million. The Facility would be designed to provide OCC with 
access to additional liquidity for working capital needs and general 
corporate purposes. The Facility will also satisfy the liquidity 
requirement of CFTC regulation Section 39.11(e)(2).\5\ OCC also does 
not expect any need to draw funds against the Facility. OCC's principal 
reason for entering into the Facility is to provide OCC additional 
flexibility in managing its liquid assets while ensuring continued 
compliance with the liquidity requirements of the CFTC regulations 
cited above.
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    \5\ For clarity concerning the scope of the proposed Change, OCC 
notes that the Commission recently published a notice of no 
objection to an OCC advance notice filing through which OCC replaced 
a separate credit facility that is maintained for the purpose of 
meeting obligations that may arise out of the default or suspension 
of an OCC clearing member or the failure of a bank or securities or 
commodities clearing organization to perform its obligations due to 
bankruptcy, insolvency, receivership, or suspension of operations. 
Securities Exchange Act Release No. 34-68002 (October 5, 2012); 77 
FR 62308 (October 12, 2012).
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    Among other things, CFTC regulation Section 39.11(a)(2) requires a 
derivatives clearing organization (``DCO'') to hold an amount of 
financial resources that, at a minimum, exceeds the total amount that 
would enable the DCO to cover its operating costs for a period of at 
least one year, calculated on a rolling basis.\6\ In turn, CFTC 
regulation Section 39.11(e)(2) provides that these financial resources 
must include unencumbered, liquid financial assets (i.e., cash and/or 
highly liquid securities), equal to at least six months' operating 
costs and that if any portion of such financial resources is not 
sufficiently liquid, the DCO may take into account a committed line of 
credit or similar facility for the purpose of meeting this 
requirement.\7\ Accordingly, under the proposed Change, OCC would enter 
into a credit agreement for the Facility with BMO Harris Bank N.A. 
(``Lender'') having a maximum aggregate principal loan amount not to 
exceed $25 million.
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    \6\ 17 CFR 39.11(a)(2).
    \7\ 17 CFR 39.11(e)(2).
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    One of the conditions of OCC's access to the Facility is the 
execution of credit agreement documents between OCC and the Lender. OCC 
anticipates that the parties will finalize the forms of the credit 
agreement documents in early 2013. Ongoing conditions governing OCC's 
ability to access the Facility would include that no default or event 
of default by OCC may exist before or during an extension of credit by 
the Lender to OCC through the Facility and that certain representations 
of OCC must remain true and correct. Events of default would include, 
but not be limited to, failure to pay any interest, principal, fees or 
other amounts when due, default under any covenant or agreement in any 
loan document, materially inaccurate or false representations or 
warranties, cross default with other material debt agreements, 
insolvency, bankruptcy, dissolution or termination of the existence of 
OCC, and unsatisfied judgments.
    The Facility would be available to OCC on a revolving basis for a 
364-day term. Upon notice by OCC to the Lender of a request for funds, 
whether in writing or by telephone, the Lender would disburse loaned 
funds to OCC in U.S. dollars. The date of any loan would be required to 
be a business day, and the loans would be unsecured and made and 
evidenced by a promissory note provided by OCC. Under the terms of 
OCC's Agreement with the Lender, any loan proceeds would be required to 
be used by OCC to finance its working capital needs or for OCC's 
general corporate purposes. OCC's ability to draw against the Facility, 
even though no such draw is actually made, would contribute to OCC's 
compliance with the liquidity requirements prescribed by CFTC 
regulation Section 39.11(e)(2).
    OCC would have the ability to terminate the Facility at any time. 
Termination within the first six months of the Facility would trigger a 
termination fee. After six months from the date of entering the 
Agreement with the Lender to establish the terms of the Facility, OCC 
would be permitted to cancel the Facility with no termination fee. Upon 
five days written notice during the term of the Facility, OCC would 
also be permitted to reduce the overall size of the Facility at any 
time. Any such reductions would be required to be made in an initial 
amount of at least $2.5 million. Thereafter, reductions would be able 
to be made in multiples of $1 million. In no event, however, would OCC 
be permitted to reduce the size of the Facility to an

[[Page 3484]]

amount that is less than the greater of either its aggregate principal 
amount of indebtedness outstanding with respect to loans from the 
Facility or $15 million.\8\
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    \8\ In the event that OCC seeks to terminate or reduce the 
overall size of the Facility, OCC will first file an advance notice 
with the Commission.
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    The outstanding principal balance of all loans made to OCC through 
the Facility will accrue interest equal to a base rate (generally equal 
to a Prime Rate, a Federal Funds Rate, or a LIBOR rate), as in effect 
from time to time, plus a certain applicable margin. Regardless of 
which method applies to a particular portion of OCC's total outstanding 
loan balance, in an event of a default the calculation of the amount of 
interest would be subject to a 2.00% increase above the otherwise 
applicable rate.
    The Facility would involve a variety of customary fees payable by 
OCC to the Lender, including, but not limited to: (1) A one-time 
upfront fee payable at closing to the Lender calculated as a percentage 
of the total commitment amount of the Facility; (2) commitment fees 
payable quarterly in arrears on the average daily unused amount of the 
Facility; (3) reasonable out-of-pocket costs and expenses of the Lender 
in connection with the negotiation, preparation, execution, and 
delivery of the Facility and loan documentation, and costs and expenses 
in connection with any default, event of default, or enforcement of the 
Facility; and (4) termination fees if OCC elects to terminate the 
Facility prior to six months from the date of the credit agreement 
underlying the Facility.
Anticipated Effect on and Management of Risk
    OCC believes that any impact of the Facility on the risks presented 
by OCC would be to reduce such risks by providing an additional source 
of liquidity for the protection of OCC, its clearing members, and the 
options market in general. OCC also believes it would provide OCC with 
additional liquidity for working capital needs and general corporate 
purposes and thereby assist OCC in satisfying the CFTC's requirements 
with respect to liquidity under CFTC regulation Section 39.11.
    Like any lending arrangement, OCC notes there is a risk that the 
Lender would fail to fund when OCC requests a loan, because of the 
Lender's insolvency, operational deficiencies, or otherwise. Even if 
OCC were to draw on the Facility for liquidity purposes, which it does 
not anticipate, OCC believes that the potential funding risk associated 
with the Facility is mitigated in several ways. First, the Lender is a 
national banking association that is subject to oversight by prudential 
banking regulators with respect to its safety and soundness and its 
ability to meet its lending obligations. Furthermore, the $25 million 
size of the Facility would be relatively small when compared to the 
total resources available to OCC. Therefore, if the Facility proved 
unavailable to OCC for any reason, OCC believes that it readily would 
be able to access, or arrange for access, to other sources of liquidity 
if necessary.
    According to OCC, a second risk associated with the Facility is the 
risk that OCC would default on its obligation to make timely payment of 
principal or interest. OCC believes the benefits of the Facility 
outweigh this risk. Finally, because the Facility would be an unsecured 
lending arrangement, OCC would not be at risk in an event of default of 
the Lender potentially liquidating OCC assets that are used to secure 
loaned funds.

(B) Clearing Agency's Statement on Comments on the Advance Notice 
Received From Members, Participants, or Others

    Written comments were not and are not intended to be solicited with 
respect to the advance notice and none have been received.

III. Date of Effectiveness of the Advance Notice and Timing for 
Commission Action

    The clearing agency may implement the proposed change pursuant to 
Section 806(e)(1)(G) of the Clearing Supervision Act \9\ if it has not 
received an objection to the proposed change within 60 days of the 
later of (i) the date that the Commission received the advance notice 
or (ii) the date the Commission receives any further information it 
requests for consideration of the notice. The clearing agency shall not 
implement the proposed changes contained in the advance notice if the 
Commission objects to the proposed change.
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    \9\ 12 U.S.C. 5465.
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    The Commission may extend the period for review by an additional 60 
days if the proposed change raises novel or complex issues, subject to 
the Commission providing the clearing agency with prompt written notice 
of the extension. A proposed change may be implemented in less than 60 
days from the date of receipt of the advance notice, or the date the 
Commission receives any further information it requested, if the 
Commission notifies the clearing agency in writing that it does not 
object to the proposed change and authorizes the clearing agency to 
implement the proposed change on an earlier date, subject to any 
conditions imposed by the Commission.
    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed. The clearing 
agency shall post notice on its Web site of proposed changes that are 
implemented.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-OCC-2012-801 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-OCC-2012-801. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the advance notice that are filed 
with the Commission, and all written communications relating to the 
advance notice 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 Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE., Washington, 
DC 20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filings also will be available for inspection 
and copying at the principal office of OCC and on OCC's Web site at 
http://www.theocc.com/about/publications/bylaws.jsp.
    All comments received will be posted without change; the Commission 
does not edit personal identifying

[[Page 3485]]

information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-OCC-2012-801 and should be submitted on or before 
February 6, 2013.

    By the Commission.
Kevin O'Neill,
Deputy Secretary.
[FR Doc. 2013-00795 Filed 1-15-13; 8:45 am]
BILLING CODE 8011-01-P