Document ID: SEC-2007-0060-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Options Clearing Corp.
Posted Date: 2007-01-12T05:00Z

[Federal Register: January 12, 2007 (Volume 72, Number 8)]
[Notices]               
[Page 1571-1572]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12ja07-119]                         

[[Page 1571]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55047; File No. SR-OCC-2006-21]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of a Proposed Rule Change Relating to Membership 
Requirements

January 5, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ notice is hereby given that on November 15, 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.
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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 modify certain OCC By-Laws and Rules 
relating to membership requirements.

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

    The purpose of this rule change is to modify certain By-Laws and 
Rules relating to membership requirements in order to improve their 
effectiveness or otherwise clarify their meaning.
1. Interpretation and Policy .03
    Interpretation and Policy .03 to Article V, Section 1, of OCC's By-
Laws currently requires applicants for membership to employ two key 
operations employees on a full-time basis. This requirement is intended 
to ensure that an applicant maintains sufficient staff to fulfill its 
obligations as a clearing member. However, several recent applicants 
for clearing membership have had difficulty meeting this requirement 
because their entire staff was employed by an affiliate of the 
applicant (i.e., a parent or related organization) rather than by the 
applicant itself. While these applicants entered into employee leasing 
arrangements in order to comply with OCC's policy, OCC decided to 
reevaluate the policy in light of the fact that it had proved 
burdensome to a number of applicants.
    OCC understands that it is not uncommon for some entities of an 
affiliated corporate group to outsource certain or all functions to 
another entity of the corporate group and let the latter be the sole 
employer of the people who perform those functions. In situations of 
that nature, OCC has concluded that there is not the same reason to be 
concerned about whether the applicant will have adequate staffing as in 
cases where the applicant relies on an unaffiliated third party for 
staffing. OCC therefore wishes to modify its policy in order to provide 
greater flexibility to recognize this alternative employment structure. 
Accordingly, OCC proposes to amend Interpretation and Policy .03 to 
Article V, Section 1, to permit the Membership/Risk Committee 
(``Committee'') to waive the requirement that an applicant employ two 
key operations employees on a full-time basis if the daily operations 
of the applicant are conducted by staff employed on a full-time basis 
by an entity affiliated with such applicant. OCC believes that the 
Committee's authority to waive such requirement is consistent with its 
existing authority to waive the requirement that an applicant employ at 
least one full-time person who is registered as a ``Limited Principal--
Financial and Operations'' or comparable registration requirement, as 
applicable.
2. Rule 309
    OCC proposes to amend Rule 309 to clarify that if an operationally 
capable clearing member proposes to become a managed clearing member 
(i.e., outsource certain of its obligations as a clearing member to 
another clearing member [``managing clearing member'']), the applicant 
must obtain prior approval from the Committee. Currently, 
Interpretation and Policy .04 primarily contemplates the use of 
facilities management agreements by applicants for membership rather 
than existing clearing members. Nonetheless, OCC has always interpreted 
its By-Laws and Rules as requiring prior Committee review and approval 
of all facilities management agreements, including those proposed to be 
entered into by operationally capable clearing members. The proposed 
amendment to Rule 309 makes this interpretation explicit.
3. Rule 901
    OCC proposes to amend Rule 901 to provide that a clearing member's 
appointment of another clearing member or CDS Clearing and Depository 
Services Inc. (``CDS'') \3\, as applicable, for purposes of effecting 
settlements of exercised or matured cleared securities may not be 
terminated until after the 30th calendar day following notice to OCC of 
such termination.\4\ Currently, clearing members are required to 
provide three business days notice of terminating such appointments. 
However, three business days might be insufficient for OCC to determine 
whether or not the clearing member has made appropriate alternative 
settlement arrangements. Accordingly, OCC proposes to change the notice 
period to be consistent with the notice period required to advise OCC 
of the termination of a facilities management agreement.\5\
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    \3\ CDS is the successor organization to Canadian Depository for 
Securities Ltd. The By-Law definition of CDS has been amended to 
reflect this organizational change.
    \4\ OCC surveyed appointed clearing members that effect NSCC 
settlements for nonaffiliated clearing members as well as CDS to 
ascertain their views regarding the proposed change in the notice 
period for terminating such appointments. There were no objections 
to the proposed change.
    \5\ Conforming changes have been made to the related appointment 
forms, which are attached as Exhibits 5A and 5B to the proposed rule 
filing.
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    OCC believes that the proposed change is consistent with Section 
17A of the Act \6\ because it amends certain rule provisions relating 
to membership requirements in order to improve their effectiveness or 
otherwise clarify their meaning and thereby promotes the prompt and 
accurate clearance and settlement of derivative contracts and 
transactions.
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    \6\ 15 U.S.C. 78q-1.
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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.

[[Page 1572]]

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 (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-2006-21 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-2006-21. 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-2006-21 and should be submitted on or before February 2, 2007.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-305 Filed 1-11-07; 8:45 am]

BILLING CODE 8011-01-P