Document ID: SEC-2006-1330-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Options Clearing Corp.
Posted Date: 2006-10-13T04:00Z

[Federal Register: October 13, 2006 (Volume 71, Number 198)]
[Notices]               
[Page 60599-60600]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13oc06-116]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54572; File No. SR-OCC-2006-12]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of a Proposed Rule Change Relating to an Escrow 
Program Fee To Be Charged to Escrow Banks

October 4, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 12, 2006, The Options 
Clearing Corporation (``OCC'') filed with the Securities and Exchange 
Commission the proposed rule change as 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 proposed rule 
change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change would amend OCC's Schedule of Fees by 
adding a $200 escrow fee to be charged to OCC-approved banks.

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. The self-regulatory organization has prepared summaries, 
set forth in Sections A, B, and C below, of the most significant 
aspects of such statements.\2\
---------------------------------------------------------------------------

    \2\ The Commission has modified the text of the summaries 
prepared by OCC.
---------------------------------------------------------------------------

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The purpose of the proposed rule change is to amend OCC's Schedule 
of Fees by adding a $200 escrow fee to be charged to OCC-approved 
banks.
    As background, OCC's escrow deposit program allows a custodian bank 
that has entered into an escrow agreement with OCC (``escrow bank'') to 
make deposits of eligible collateral on behalf of its customers with 
respect to stock option contracts and index option contracts carried in 
short positions and to rollover and withdraw such deposits by 
submitting electronic instructions to OCC through OCC's escrow deposit 
system.\3\ Escrow deposits are pledged to both the customer's clearing 
member and to OCC in order to satisfy the customer's obligation to 
deposit customer level margin at the clearing member and in order to 
satisfy the clearing member's obligation to deposit clearing level 
margin at OCC with respect to a specified short position in stock or 
index options.\4\ Under OCC's form of escrow agreement, an escrow bank 
is obligated to hold the deposited collateral subject to the lien of 
OCC and the clearing member until such liens are released.
---------------------------------------------------------------------------

    \3\ Escrow banks also use the escrow deposit system to receive 
and review OCC and relevant clearing member responses and to access 
reports.
    \4\ Escrow deposits may include: (i) the underlying securities 
for any stock option contract; (ii) cash, short-term U.S. Government 
securities, and/or common stocks for any index call option contract; 
and (iii) cash and/or short-term U.S. Government securities for 
stock or index put options.
---------------------------------------------------------------------------

    In 2005, the escrow deposit system was integrated into OCC's 
clearing system, which enabled escrow banks to access the escrow system 
through the internet. Before the integration, escrow banks were 
required to lease or buy a personal computer that was configured by OCC 
to provide secure access to the escrow deposit system. Banks that 
elected the lease alternative are charged a $200.00 monthly fee of 
which $150.00 is an equipment leasing fee and $50.00 is an access 
fee.\5\ Banks that (i) Elected the purchase alternative or (ii) became 
escrow banks after the systems integration are charged only the $50 
access fee, which is intended to cover the costs associated with 
administering the escrow deposit program. Costs to administer the 
program include: (1) Legal costs related to addressing the contractual 
aspects of the program; (2) audit costs related to ensuring compliance 
with the external audit reporting requirements of the program; and (3) 
staff costs related to servicing program users (i.e., escrow banks and 
clearing members).
---------------------------------------------------------------------------

    \5\ OCC has continued to charge current escrow banks with leased 
equipment the $200.00 per month total fee as they have retained such 
equipment as a back-up to Internet access to the escrow system. 
However, a different back-up solution is being implemented for all 
escrow banks, which is rendering the leased equipment obsolete for 
purposes of accessing the escrow system.
---------------------------------------------------------------------------

    In connection with reviewing different back-up solutions to 
Internet access, OCC also examined its costs to administer the escrow 
program and concluded that the costs greatly exceed the $50.00 per 
month access fee. Accordingly, OCC has determined to charge all escrow 
banks a $200.00 per month escrow program fee, which would be reflected 
in OCC's Schedule of Fees. The proposed program fee will allow OCC to 
partially offset its escrow program administration costs but will not 
affect the overwhelming majority of escrow banks which already pay 
$200.00 per month in aggregate escrow deposit program fees.
    OCC believes that the proposed change is consistent with Section 
17A of the Act \6\ and the rules thereunder because it amends OCC's 
Schedule of Fees to include a reasonable fee to be charged to escrow 
banks that utilize OCC's escrow deposit system to partially offset 
OCC's cost to administer the escrow program. The proposed rule change 
is not inconsistent with the existing rules of OCC including any other 
rules proposed to be amended.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    OCC does not believe that the proposed rule change would impose any 
burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    OCC has not solicited or received written comments with respect to 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within thirty-five days of the date of publication of this notice 
in the Federal Register or within such longer period (i) As the 
Commission may designate up to ninety days of such date if it finds 
such longer period to be appropriate and publishes its reasons for so 
finding or

[[Page 60600]]

(ii) as to which the self-regulatory organization consents, the 
Commission will:
    (A) by order approve such proposed rule change; or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. 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 e-mail to rule-comments@sec.gov. Please include 

File No. SR-OCC-2006-12 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-OCC-2006-12. This file 
number should be included on the subject line if e-mail 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 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 the 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Section, 100 F Street, 
NE., Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at OCC's principal office and on OCC's Web 
site at http://www.theocc.com/publications/rules/proposed_changes/ 

proposed--changes.jsp. All comments received will be posted without 
change; the Commission does not edit personal identifying information 
from submissions. You should submit only information that you wish to 
make available publicly. All submission should refer to File No. SR-
OCC-2006-12 and should be submitted on or before November 3, 2006.
---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
Nancy M. Morris,
Secretary.
 [FR Doc. E6-16948 Filed 10-12-06; 8:45 am]

BILLING CODE 8011-01-P