Document ID: SEC-2007-0607-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Options Clearing Corp.
Posted Date: 2007-04-27T04:00Z

[Federal Register: April 27, 2007 (Volume 72, Number 81)]
[Notices]               
[Page 21062-21064]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27ap07-95]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55653; File No. SR-OCC-2006-09]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of a Proposed Rule Change Relating to Choice of Law 
and Forum Selection

April 20, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 22, 2006, The Options 
Clearing Corporation (``OCC'') filed with the Securities and Exchange 
Commission (``Commission'') and on December 12, 2006, amended 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.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change would provide for the addition of new 
general choice of law and forum selection provisions to OCC's By-Laws.

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.\2\
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    \2\ The Commission has modified parts of these statements.

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[[Page 21063]]

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

    The proposed rule change would add new general choice of law and 
forum selection provisions to OCC's By-Laws. The purpose of the 
proposed rule change is to ensure there are appropriate choice of law 
and forum selection provisions governing all contractual relations 
between OCC and each of its clearing members. The proposed provisions 
should provide greater clarity, consistency, and predictability in the 
application of the law to all contractual relations between OCC and 
each of its clearing members and in the choice of forum in the event of 
litigation on such matters.
    OCC's By-Laws and Rules each currently contain choice of law 
provisions that apply in somewhat limited circumstances. This approach 
is problematic as it could lead to inconsistencies between the two 
provisions or because it may fail to properly specify a governing law 
with respect to certain contractual relations altogether.
    Article VI, Section 9(c) of OCC's By-Laws provides that Illinois 
law, specifically the Illinois Uniform Commercial Code, is the 
governing law with respect to cleared contracts. A ``cleared contract'' 
is defined in Article I, Section 1 of OCC's By-Laws as ``a cleared 
security or commodity future or futures option that is cleared by 
[OCC].'' A ``cleared security'' is defined as ``an option contract 
(other than a futures option), a security future or a BOUND.'' However, 
OCC has interactions and relationships with clearing members not 
directly involving cleared contracts (e.g., membership and financial 
requirements). Accordingly, the choice of law provisions in Article VI, 
Section 9(c) are not comprehensive.
    OCC Rule 614(m), which clarifies the limited obligations of OCC in 
connection with pledges of cleared securities, incorporates certain 
provisions of Article VI, Section 9 of the By-Laws by reference and 
also contains special provisions applicable in the event that, 
notwithstanding the choice of law provisions of Article VI, Section 
9(c), the laws of a jurisdiction that has not adopted the 1994 
revisions to Article 8 and 9 of the UCC are applicable to security 
interests in pledged securities. However, all 50 U.S. States, the 
District of Columbia, the U.S. Virgin Islands, and Puerto Rico have now 
adopted the 1994 revisions to Article 8 and 9 of the UCC, rendering the 
special provisions unnecessary.
    Article V of OCC's By-Laws (Clearing Members), Section 3 
(Conditions to Admission), subparagraph (k) provides that as a 
condition to admission as a clearing member, non-U.S. securities firms 
must consent to the jurisdiction of Illinois courts and to the 
application of U.S. law in connection with any dispute with OCC arising 
from membership. However, this provision only applies to the limited 
context of disputes with OCC arising from membership.
    The proposed rule change would add a general choice of law 
provision to OCC's By-Laws in order to provide consistency and 
predictability in the application of the law to all relations between 
OCC and its clearing members. This provision would be particularly 
useful with respect to collateral posted by non-U.S. clearing members 
where a clear choice of law provision could provide further assurance 
that OCC's interests in such collateral are properly perfected. Such a 
provision would also decrease the likelihood of an inadvertent 
inconsistency among provisions of the various Articles of the By-Laws.
    Illinois law is the most logical choice to be the governing law 
under the proposed choice of law provision given OCC's location and 
OCC's familiarity with Illinois law. Selecting Illinois law, along with 
Federal law, as governing law would also result in the greatest 
consistency with current provisions of OCC's By-Laws and Rules. In 
addition, selection of Illinois as the forum for resolving any claims 
or disputes arising out of or relating to OCC's By-Laws or Rules would 
be most logical in light of the consistent application of Illinois law 
to relations between OCC and its clearing members.
    The following proposed revisions to OCC's By-Laws and Rules are 
necessary to create a general choice of law provision:
    (1) New Choice of Law Provision: OCC proposes to add a new Section 
10 (General Choice of Law and Forum Selection) to Article IX (General 
Provisions) of its By-Laws. New Section 10 would specify Illinois law 
as the governing law with respect to OCC's By-Laws and Rules as well as 
any agreements between OCC and clearing members. It would also specify 
that any lawsuits between clearing members and OCC be brought in a 
federal court or in the absence of federal jurisdiction in a state 
court located in Chicago, Illinois. Existing Sections 10-12 of Article 
IX would be renumbered as Sections 11-13 but would otherwise remain 
unchanged.
    (2) Amendments to Other Sections of the By-Laws: OCC proposes that 
Article VI, Section 9(c) of the By-Laws be removed in its entirety and 
replaced with a reference to the proposed Article IX, Section 10 of the 
By-Laws and with a notice provision that persons desiring to perfect 
security interests in cleared securities seek the advice of counsel.
    (3) Amendments to Rules: OCC proposes to make conforming amendments 
to Rule 604(b)(3)(ii) and to Interpretation and Policy .01 under Rule 
614. These amendments are necessary in light of the adoption of the 
general choice of law provision described above. OCC further proposes 
that language in Rule 614(m) providing for a contingency in the event 
of the application of the law of a jurisdiction that has not adopted 
the 1994 amendments to Articles 8 and 9 of the UCC be deleted as no 
longer necessary.
    The proposed rule change is consistent with Section 17A of the Act 
because it is designed to assure the safeguarding of securities and 
funds which are in the custody or control of the OCC or for which OCC 
is responsible, removes impediments to and perfects the mechanism of a 
national system for the prompt and accurate clearance and settlement of 
securities transactions, and in general protects investors and the 
public interest by providing for clarity and predictability in the 
application of the law to all contractual relations between OCC and its 
clearing members, especially with respect to the perfection of 
interests in collateral. Other than as described in footnote 1 to Rule 
604, the proposed rule change is not inconsistent with any other By-
Laws or Rules of OCC, including those proposed to be amended.

(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

    Written comments were not and are not intended to be solicited with 
respect to the proposed rule change, and none have been received.

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

    Within 35 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 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or

[[Page 21064]]

(ii) as to which the self-regulatory organization consents, the 
Commission will:
    (A) By order approve the 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 Number SR-OCC-2006-09 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 Number SR-OCC-2006-09. 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 the principal office of OCC and on OCC's 
Web site at http://www.optionsclearing.com.

    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 submissions should refer to File Number SR-OCC-2006-09 
and should be submitted on or before May 18, 2007.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\3\
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    \3\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-8054 Filed 4-26-07; 8:45 am]

BILLING CODE 8010-01-P