Document ID: SEC-2012-0029-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Options Clearing Corp.
Posted Date: 2012-01-09T05:00Z

[Federal Register Volume 77, Number 5 (Monday, January 9, 2012)]
[Notices]
[Pages 1116-1119]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-96]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66081; File No. SR-OCC-2011-18]

Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change Relating to DCO 60 Day Regulations

January 3, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 20, 2011, Options Clearing Corporation (``OCC'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change described in Items I and II below, which items have been 
prepared primarily by OCC. The Commission is publishing this Notice and 
Order to solicit comments on the proposed rule change from interested 
persons and to approve the proposed rule change on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of Terms of Substance of 
the Proposed Rule Change

    The Options Clearing Corporation (``OCC'' or the ``Corporation'') 
proposes to amend its By-Laws and Rules as set forth below in order to 
ensure OCC's technical compliance with final regulations promulgated by 
the Commodity Futures Trading Commission (``CFTC'') applicable to 
derivatives clearing organizations (``DCOs''). Material proposed to be 
added to OCC's By-Laws and Rules as currently in effect is italicized 
and material proposed to be deleted is enclosed in bold brackets.

THE OPTIONS CLEARING CORPORATION

BY-LAWS

* * * * *

ARTICLE VI

CLEARANCE OF EXCHANGE TRANSACTIONS

* * * * *

General Clearance Rule

SECTION 1. [no change]

    ...Interpretations and Policies
    .01-.02 [no change]
    .03 (a) Except as otherwise provided in the By-Laws or Rules 
(including Chapter XI thereof), the Corporation will promptly transfer 
all or any portion of a carrying Clearing Member's segregated futures 
customer account maintained in accordance with Section 3(f) of this 
Article VI or segregated futures professional account maintained in 
accordance with Section 3(j) of this Article VI, and will, at the same 
time, transfer related funds (if any) upon the request of the carrying 
Clearing Member and the confirmation of the receiving Clearing Member 
that it will accept such transfer, provided that the request for 
transfer and confirmation of transfer are received by the Corporation 
in accordance with the procedures and within such timeframes as 
required by the Corporation.
    (b) Any transfer effected pursuant to this Interpretation and 
Policy .03 shall be subject to such policies and procedures as the 
Corporation determines are reasonably necessary for the protection of 
the Corporation, other Clearing Members, customers and the general 
public and the Corporation may refuse any transfer request that does 
not comply with such policies and procedures.
    (c) Any carrying Clearing Member requesting a transfer pursuant to 
this Interpretation and Policy .03 shall be deemed to have represented 
to the Corporation that: (1) such transfer is being made upon the 
instruction of the customer of the carrying Clearing Member to make 
such transfer, (2) the customer instructing the carrying Clearing 
Member to transfer its positions is not currently in default to the 
carrying

[[Page 1117]]

Clearing Member, and (3) any remaining positions of the customer will 
have appropriate margin at the carrying Clearing Member.
    (d) Any receiving Clearing Member consenting to a transfer of 
positions in accordance with Interpretation and Policy .03 shall be 
deemed to have represented to the Corporation that the transferred 
positions will have appropriate margin at the receiving Clearing 
Member.
    (e) No transfer of positions between Clearing Members pursuant to 
this Interpretation and Policy .03 shall require the close-out or re-
booking of the positions.
    (f) The Corporation may refuse to effect a transfer pursuant to 
this Interpretation and Policy .03 if doing so would result in any 
account of the carrying or receiving Clearing Member having margin 
assets less than the Corporation deems necessary.
    (g) Any transfer effected pursuant to this Interpretation and 
Policy .03 shall be deemed to have been completed at such time as (1) 
position reports provided to the receiving Clearing Member indicate 
that the transferred position(s) is/are in the appropriate account of 
the receiving Clearing Member and (2) the transfer of any related funds 
has been finalized.

RULES

* * * * *

CHAPTER VI

MARGINS

* * * * *

Form of Margin Assets

RULE 604. (a)-(c) [no change]

    (d) Funds and securities held by or subject to the instructions of 
the Corporation as margin shall, subject to the rights of the 
Corporation in respect thereof, remain the property of the respective 
Clearing Members for whose accounts such funds and securities are held. 
Funds and securities deposited in respect of a segregated futures 
account shall be held in accordance with the provisions of Section 4d 
of the Commodity Exchange Act and regulations thereunder. All other 
funds held by the Corporation as margin (other than funds invested by 
the Corporation pursuant to subsection (a) of this Rule and funds 
credited by the Corporation to a Liquidating Settlement Account 
pursuant to Chapter XI) shall be deposited to the credit of the 
Corporation in an account or accounts, designated as Clearing Member 
[lsqbb]trust[rsqbb] margin accounts, with such banks, trust companies 
or other depositories as the Board of Directors may select. Such funds 
shall not be commingled with funds of the Corporation or used by the 
Corporation as working capital. To the extent that funds held by the 
Corporation as margin are invested by the Corporation in securities 
pursuant to subsection (a) of this Rule, the Corporation shall maintain 
records clearly identifying such securities as held in trust for 
Clearing Members. The Corporation shall have the right to commingle 
funds and securities held as margin for the account of any Clearing 
Member with funds and securities held as margin for other Clearing 
Members.
    (e)-(f) [no change]
* * * * *

CHAPTER XI

SUSPENSION OF A CLEARING MEMBER

* * * * *

Notice to Corporation

Rule 1101. A Clearing Member that is unable to meet its obligations, 
[lsqbb]or[rsqbb] is insolvent, or becomes the subject of a bankruptcy 
petition, receivership proceeding, or the equivalent shall immediately 
notify the Corporation by telephone of such event [lsqbb]that it is 
unable to meet its obligations or is insolvent[rsqbb]. Such notice 
shall be confirmed in writing promptly by said Clearing Member.

Suspension

    Rule 1102. (a) The Board of Directors or the Chairman of the 
Corporation may summarily suspend any Clearing Member which: (i) has 
been and is expelled or suspended from any self-regulatory organization 
(as defined in Section 3(a) of the Securities Exchange Act of 1934, as 
amended, but not including the Municipal Securities Rulemaking Board, 
or as defined in the rules of the Commodity Futures Trading 
Commission); (ii) [lsqbb]is in default of[rsqbb] fails to make any 
delivery of [lsqbb]funds or[rsqbb] cash, securities or other property 
to the Corporation in a timely manner as required by the By-Laws or 
Rules; (iii) [lsqbb]is in default of[rsqbb] fails to make any delivery 
of funds or securities to another Clearing Member required pursuant to 
the By-Laws or Rules; (iv) [lsqbb]is in default of[rsqbb] fails to make 
any delivery of funds or securities to the correspondent clearing 
corporation in a timely manner, has appointed an Appointed Clearing 
Member to act on its behalf and such Appointed Clearing Member 
[lsqbb]is in default of[rsqbb] fails to make any delivery of funds or 
securities to the correspondent clearing corporation in a timely manner 
or effects settlement at the correspondent clearing corporation through 
an identifiable subaccount in an account of CDS at the correspondent 
clearing corporation and CDS [lsqbb]is in default of[rsqbb] fails to 
make any delivery of funds or securities to the correspondent clearing 
corporation in a timely manner; (v) is in such financial or operating 
difficulty that the Board of Directors or the Chairman of the 
Corporation determines and so notifies the appropriate regulatory 
agency for such Clearing Member (or, in the case of a Non-U.S. Clearing 
Member, the appropriate Non-U.S. Regulatory Agency) and the Securities 
and Exchange Commission or the Commodity Futures Trading Commission 
that suspension is necessary for the protection of the Corporation, 
other Clearing Members, or the general public; or (vi) in the case of a 
Non-U.S. Clearing Member, has been and is expelled or suspended by its 
Non-U.S. Regulatory Agency or any securities exchange or clearing 
organization of which it is a member. In addition, the Corporation may 
summarily suspend any Clearing Member in accordance with Rule 707. In 
the event that any Clearing Member is suspended, the Corporation shall 
cease to act for it except as hereinafter specified.
    (b) [no change]

... Interpretations and Policies

.01 The occurrence of any of the events described in Rule 1102 shall 
constitute an event of ``default'' with respect to a Clearing Member.

Creation of Liquidating Settlement Account

Rule 1104

    (a)-(d) [no change]
    (e) For the avoidance of doubt, any margin assets in the firm lien 
account of a Clearing Member that has been suspended pursuant to Rule 
1102 may be applied to cover losses with respect to such Clearing 
Member's segregated futures account(s) if the assets in such segregated 
futures accounts are insufficient to cover a shortfall in such 
accounts.
    (f) For the avoidance of doubt, nothing in this Chapter XI or in 
any other provision of the By-Laws or Rules of the Corporation shall 
prevent the Corporation from transferring positions, cash, securities 
or other property carried in a segregated futures account of a 
defaulting Clearing Member to a non-defaulting Clearing Member at the 
direction of or with the consent of the transferring Clearing Member's

[[Page 1118]]

representative or pursuant to an order of a court of competent 
jurisdiction.
* * * * *

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

    In its filing with the Commission, OCC included statements 
concerning the purpose 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 III below. OCC has prepared summaries, set forth in sections A, B, 
and C below, of the most significant aspects of such statements.

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

    The purpose of the proposed changes to OCC's By-Laws and Rules is 
to ensure technical compliance with final regulations of the Commodity 
Futures Trading Commission (``CFTC'') applicable to derivatives 
clearing organizations (``DCOs'') that become effective on January 9, 
2012. The CFTC's final regulations implement many of the core 
principles applicable to DCOs under the Commodity Exchange Act.
The Final DCO Regulations
    On October 18, 2011, the CFTC held an open meeting at which it 
issued final regulations implementing many of the new statutory core 
principles for DCOs enacted under the Dodd-Frank Act. While certain of 
these final regulations go into effect on May 7, 2012 and November 8, 
2012, the majority of the final regulations go into effect on January 
9, 2012. While OCC is already in compliance with most of the final 
regulations that go into effect on January 9, 2012, OCC believes it 
appropriate to clarify certain of its rules to ensure technical 
compliance with the CFTC's rules as described herein.
Safekeeping of Funds
    CFTC Rule 39.15(c) requires each DCO to ``hold funds and assets 
belonging to clearing members and their customers in a manner which 
minimizes the risk of loss or of delay in the access by the derivatives 
clearing organization to such funds and assets.'' OCC Rule 604(d) 
provides that funds held by OCC as margin, other than funds and 
securities deposited in a segregated futures account, funds invested by 
OCC under Rule 604(a) and funds credited by OCC to a liquidating 
settlement account ``shall be deposited to the credit of the 
Corporation in an account or accounts, designated as Clearing Member 
trust accounts, with such banks, trust companies or other depositories 
as the Board of Directors may select.'' The designation of such 
accounts as ``trust accounts'' was originally intended to clarify that 
funds and securities held as margin remain the property of the 
depositing clearing member, subject to OCC's security interest in such 
assets, and that those assets, unlike clearing fund deposits, cannot be 
applied to defaults of other clearing members. However, as the term 
``trust'' could potentially cause uncertainty and delay in obtaining 
the release of these assets to OCC, OCC is amending Rule 604(d) to 
replace the word ``trust'' with the word ``margin.''
Transfer of Customer Positions
    CFTC Rule 39.15(d) requires a DCO to have ``rules providing that 
the derivatives clearing organization will promptly transfer all or a 
portion of a customer's portfolio of positions and related funds at the 
same time from the carrying clearing member of the derivatives clearing 
organization to another clearing member of the derivatives clearing 
organization, without requiring the close-out and re-booking of the 
positions prior to the requested transfer, subject to the following 
conditions: (1) The customer has instructed the carrying clearing 
member to make the transfer; (2) The customer is not currently in 
default to the carrying clearing member; (3) The transferred positions 
will have appropriate margin at the receiving clearing member; (4) Any 
remaining positions will have appropriate margin at the carrying 
clearing member; and (5) The receiving clearing member has consented to 
the transfer.'' Although OCC Interpretation and Policy .01(a) currently 
provides that ``it is the policy of the Corporation to permit a 
Clearing Member to submit adjustments to its positions with the 
Corporation to (1) effect a transfer of accounts between Clearing 
Members,'' no provision of OCC's bylaws or rules specifically addresses 
the technical requirements of CFTC Rule 39.15(d) with respect to 
futures customer positions. In order to avoid any doubt about OCC's 
compliance with this rule, OCC is proposing to add an additional 
Interpretation and Policy .03 to Section 1 of Article VI of its By-Laws 
to address the technical requirements of the referenced CFTC Rule.
    CFTC Rule 39.16(c)(2) requires each DCO to ``adopt rules that set 
forth its default procedures, including * * * (i) [t]he derivatives 
clearing organization's definition of a default [and] (ii) [t]he 
actions that the derivatives clearing organization may take upon a 
default, which shall include the prompt transfer, liquidation, or 
hedging of the customer or house positions of the defaulting clearing 
member, as applicable.'' Although OCC Rule 1102(a) provides a list of 
the grounds for suspension of a clearing member, those grounds are not 
expressly referred to as events of ``default,'' and OCC's By-Laws and 
Rules do not define the term ``default.'' OCC is therefore proposing to 
amend Rule 1102 to remove the word ``default'' from such rule and 
replace it with substantive provisions indicating the specific grounds 
for suspension of a clearing member, as well as to adopt a new 
Interpretation and Policy .01 that would expressly define the events 
listed in Rule 1102 as events of ``default'' with respect to a Clearing 
Member. In addition, OCC is proposing to add a new Rule 1104(f) to 
expressly provide that customer positions may be transferred in the 
event of a clearing member default.
Use of House Funds To Cover Customer Defaults
    CFTC Rule 39.16(c)(2)(vi) requires each DCO to adopt rules 
including a ``provision that the excess house funds and assets of a 
defaulting clearing member shall be applied to cover losses with 
respect to a customer default, if the relevant customer funds and 
assets are insufficient to cover the shortfall.'' While it is true that 
assets of a clearing member in a clearing member's firm lien account 
may be so applied under OCC's existing By-Laws and Rules, there is no 
provision in OCC's Rules relating to the liquidation of a suspended 
clearing member that specifically mirrors the language of CFTC Rule 
39.16(c)(2)(vi). OCC is therefore adding a new paragraph (e) to Rule 
1104 to more closely track the requirement of the CFTC rule.
Notice of Clearing Member Insolvency
    CFTC Rule 39.16(d) requires each DCO to ``adopt rules that require 
a clearing member to provide prompt notice to the derivatives clearing 
organization if it becomes the subject of a bankruptcy petition, 
receivership proceeding, or the equivalent.'' Although OCC Rule 1101 
requires a clearing member that is ``unable to meet its obligations or 
is insolvent [to] immediately notify the Corporation,'' it is possible 
for a clearing member to become the subject of a bankruptcy petition 
without being unable to meet its obligations or actually being 
insolvent. OCC is therefore proposing to amend Rule 1101 to require a 
clearing member to notify OCC if the clearing

[[Page 1119]]

member is the subject of a bankruptcy, receivership or equivalent 
proceeding.
    * * *
    The proposed changes are consistent with Section 17A of the 
Securities Exchange Act of 1934, as amended, because they are designed 
to permit OCC to perform clearing services for certain products that 
are subject to the jurisdiction of the CFTC without adversely affecting 
OCC's obligations with respect to the prompt and accurate clearance and 
settlement of securities transactions or the protection of securities 
investors and the public interest. In addition, as a CFTC-registered 
DCO, OCC is required to comply with the CFTC's core principles 
applicable to DCOs. The proposed rule change is not inconsistent with 
any rules of OCC.

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. 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 may be submitted by using 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 No. SR-OCC-2011-18 on the subject line.
     Paper comments should be sent 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-2011-18. 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 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 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 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of OCC. 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-2011-18 and should be 
submitted on or before January 30, 2012.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    In its filing, OCC requested that the Commission approve this 
request on an accelerated basis for good cause shown. OCC cites the 
reason for granting this request on an accelerated basis as OCC's 
operations as a DCO, subject to regulation by the CFTC under the CEA 
and that these rule changes are being made according to regulations 
promulgated by the CFTC, which were previously subject to notice and 
comment. Not approving this request on an accelerated basis will have a 
significant impact on OCC's operations as a DCO.
    Section 19(b) of the Act \3\ directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to such 
organization. The Commission finds that the proposed rule change is 
consistent with the requirements of the Act, in particular the 
requirements of Section 17A of the Act,\4\ and the rules and 
regulations thereunder applicable to OCC. Specifically, the Commission 
finds that the proposed rule change is consistent with Section 
17A(b)(3)(F) of the Act which requires, among other things, that the 
rules of a clearing agency be designed to promote the prompt and 
accurate clearance and settlement of derivative agreements, contracts, 
and transactions because it should allow OCC to comply with new CFTC 
regulatory requirements, thereby promoting the prompt and accurate 
clearance and settlement of derivative agreements, contracts, and 
transactions.\5\
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    \3\ 15 U.S.C. 78s(b).
    \4\ 15 U.S.C. 78q-1. In approving this proposed rule change, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\6\ for approving the proposed rule change prior to the 30th 
day after the date of publication of notice in the Federal Register 
because as a registered DCO OCC is required to comply with the new CFTC 
regulations by the time they become effective on January 9, 2012.
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    \6\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-OCC-2011-18) is approved on an 
accelerated basis.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-96 Filed 1-6-12; 8:45 am]
BILLING CODE 8011-01-P