Document ID: SEC-2015-0425-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Options Clearing Corp.
Posted Date: 2015-03-10T04:00Z

[Federal Register Volume 80, Number 46 (Tuesday, March 10, 2015)]
[Notices]
[Pages 12652-12655]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-05479]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74432; File No. SR-OCC-2015-03]

Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change Concerning the Execution of an 
Agreement for Clearing and Settlement Services Between OCC and NASDAQ 
Futures, Inc.

March 4, 2015.
    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 February 20, 2015, The Options Clearing Corporation (``OCC'') filed 
with the

[[Page 12653]]

Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared 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).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    OCC is proposing to execute an Agreement for Clearing and 
Settlement Services (``Clearing Agreement'') between OCC and NASDAQ 
Futures, Inc. (``NFX'') in connection with NFX's intention to resume 
operating as a designated contract market (``DCM'') regulated by the 
Commodity Futures Trading Commission (``CFTC'').

II. Clearing Agency'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 these 
statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    OCC is proposing to provide clearance and settlement services to 
NFX pursuant to the terms set forth in the Clearing Agreement. NFX has 
been re-designated by the CFTC as a DCM.\3\ The purpose of this 
proposed rule change is to provide notice regarding the Clearing 
Agreement so that OCC may begin providing clearing and settlement 
services for NFX in the second quarter of 2015.
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    \3\ See http://www.cftc.gov/ucm/groups/public/@otherif/documents/ifdocs/nasdaqorderofreinstatement.pdf.
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Background
    By way of background, NFX previously operated as a DCM and cleared 
its futures contracts through OCC. As such, OCC and NFX had previously 
entered into a Second Amended and Restated Agreement for Clearing and 
Settlement Services (``Previous Agreement'') dated January 13, 2012.\4\ 
Subsequently, as of January 31, 2014, NFX ceased operations as a 
contract market and became a dormant contract market under CFTC 
Regulations.\5\ As a result, the Previous Agreement was terminated 
pursuant to its terms\6\ and the clearing relationship between OCC and 
NFX terminated.
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    \4\ See Securities Exchange Act Release No. 66340 (February 7, 
2012), 77 FR 7621 (February 13, 2012) (SR-OCC-2012-02).
    \5\ See 17 CFR 40.1.
    \6\ More specifically, the Previous Agreement, in relevant part, 
stated that it would terminate if NFX terminates trading of all 
Cleared Contracts. See Section 19(b) of the Previous Agreement. See 
also note 4 supra.
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Clearing Agreement Proposal
    On November 21, 2014, NFX was approved by the CFTC as a DCM.\7\ In 
connection with that approval, OCC is now proposing to provide the 
clearance and settlement services as described in the Clearing 
Agreement. The Clearing Agreement is substantially similar to the 
Previous Agreement with several differences discussed in more detail 
below.
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    \7\ See note 3 supra.
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    The Clearing Agreement has been amended to allow OCC more 
flexibility in determining which products it will clear based upon 
OCC's conclusion that it is able to appropriately risk manage such 
products using commercially reasonable standards.\8\ More specifically, 
the following changes have been made:
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    \8\ See Sections 3(a) and 9 of the Clearing Agreement in which 
language has been added allowing such flexibility.
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     Section 3(a) of the Clearing Agreement, ``General Criteria 
for Underlying Interests,'' has been amended to permit NFX to select 
the underlying interests that are the subject of currency futures, 
commodity futures, and/or futures options to be traded on NFX only if 
OCC is satisfied that it is able to appropriately risk manage the 
contract with the proposed underlying interest using commercially 
reasonable efforts.
     Section 9 of the Clearing Agreement, ``Limitations of 
Authority and Responsibility,'' has been amended to specify that OCC 
shall have no responsibility to enforce standards relating to the 
conduct of trading on NFX unless OCC finds it reasonably necessary in 
order to appropriately risk manage the products that are being traded 
on NFX.
    In addition to the above, the Clearing Agreement will also make 
several changes to the Previous Agreement, which include:
     Section 3(c), ``Procedures for Selection of Underlying 
Interests,'' has been amended to state that NFX must submit a 
certificate for a new class of contracts not already listed or traded 
on NFX as soon as practicable (rather than ten days prior to the 
commencement of trading). It has also been amended to state that OCC 
will be obligated to use commercially reasonable efforts to authorize 
the clearance and settlement of such contracts as soon as practicable. 
In addition, the Clearing Agreement expressly obligates NFX to provide 
OCC with any additional information as requested by OCC from time to 
time that will assist OCC in identifying a new product proposed for 
clearing by NFX. OCC believes that these amendments to Section 3(c), 
related to the procedures for the selection of underlying interests, 
will ensure that OCC not only has the correct information needed to 
evaluate a proposed new product but that the information will be 
produced to OCC in a timely manner which will provide OCC sufficient 
time to evaluate the proposed new product.
     Section 3(d), ``Notice of Additional Maturity or 
Expiration Dates,'' has been amended to state that, for a class of 
products previously certified, NFX may introduce a new maturity or 
expiration date that is in the cycle set forth in the certificate by 
providing notice to OCC through electronic means specified by OCC. The 
Previous Agreement required such notice to be sent to OCC only by email 
or facsimile.
     A universal conforming change has been made to various 
sections in the Clearing Agreement to replace the term ``matched'' 
trades with ``confirmed'' trades to better describe trades that are 
processed for clearance and settlement.\9\
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    \9\ See Article I, Section 1(C)(28) of OCC's By-Laws. See also 
Sections 3(g), 6(a), 7, 19, and Schedule A, Section 1 of the 
Clearing Agreement.
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     Section 5(a), ``Confirmed Trade Reports,'' has been 
amended to remove language discussing the possibility that NFX will 
provide OCC with a confirmed trade report on a real time basis as this 
capability is already captured in the language ``as the Corporation may 
reasonably prescribe.''
     Section 5(c)(i) has been amended to include language that 
will allow OCC to determine the final settlement price for a futures 
contract in which the underlying interest is a cash-settled foreign 
currency if the organized market in which that foreign currency future 
is traded on, or the foreign currency itself, did not open or remain 
open for trading at or before the time in which the settlement price 
for such futures contract would ordinarily be determined. In addition, 
Section 5(c)(i) has been amended to include a reference to ``variance'' 
when listing factors that will allow OCC to determine a final 
reasonable settlement price, if not reported at the ordinary time of 
final

[[Page 12654]]

settlement. OCC believes that these additions to the Clearing Agreement 
clarify the potential underlying interests in which NFX may introduce 
futures contracts and make the Clearing Agreement more precise.
     Section 7, ``Acceptance and Rejection of Transactions in 
Cleared Contracts,'' has been amended to include a provision that will 
allow OCC, in accordance with its By-Laws, to reject transactions due 
to validation errors which will allow OCC to better manage its 
clearance and settlement obligations by expressly allowing it to reject 
transactions that do not contain complete terms. These validation 
errors include, for example, an incorrect Clearing Member, account, 
product or format.
     Section 8, ``Non-Discrimination,'' has been amended to 
delete a provision restricting OCC from changing its By-Laws or Rules 
in any manner that may limit its obligations to clear and settle for 
NFX. In addition, a provision has been deleted requiring OCC to amend 
the Clearing Agreement in the event that OCC has made changes to its 
standard form agreement for clearing and settlement services. Section 8 
has also been amended to delete a provision stating OCC is required to 
consult with NFX and modify OCC's By-Laws or Rules to incorporate 
product design features specified by NFX for new products. OCC believes 
that these provisions are no longer necessary as they limit OCC's 
ability to modify its By-Laws, Rules and agreements which may be 
necessary for OCC to fulfill its obligations as a clearing 
organization. OCC will, however, continue to be obligated to fulfill 
both the provisions of the Clearing Agreement and OCC's regulatory 
responsibilities. Section 8 has additionally been amended to delete an 
obligation for each party to provide the other with proposed rule 
changes. The elimination of this contractual obligation reflects the 
parties' determination that their respective obligations to post filed 
regulatory submissions on their public Web sites provides sufficient 
notice of such changes.
     Section 11, ``Financial Requirements for Clearing 
Members,'' has been amended to delete a provision stating the specific 
financial responsibility standards OCC has with respect to its Clearing 
Members. This change was made to further streamline the Clearing 
Agreement given OCC's general obligation to remain consistent with OCC 
By-Laws and Rules.
     Section 14, ``Programs and Projects,'' has been amended to 
eliminate a provision expressly requiring OCC to offer futures contract 
clearing terms to NFX that are no less favorable to the terms offered 
to other exchanges.
     Sections 15 and 24 in the Previous Agreement, 
``Information Sharing'' and ``Quality Standards'' respectively, have 
been deleted in their entirety in an attempt to simplify the Clearing 
Agreement as the sections create unnecessary obligations on the parties 
and are duplicative of general regulatory responsibilities of both 
parties.
     Section 18(b), ``Other Grounds for Termination,'' has been 
amended to include a provision that OCC may terminate the Clearing 
Agreement at any time so long as NFX is given 120 days prior written 
notice. The addition of this provision better balances the rights of 
both parties to terminate the Clearing Agreement at their discretion 
provided that proper notice is given as required by the Clearing 
Agreement.
     Various administrative changes have been made throughout 
the document including, but not limited to, an amended legal name and 
description of NFX, updated references to sections within the document, 
and clean-up changes of duplicative terms.
    Finally, Schedule A of the Clearing Agreement, ``Description of 
Clearing and Settlement Services'' and Schedule B of the Clearing 
Agreement, ``Information Sharing,'' have been amended making several 
changes to the Previous Agreement, which include:
     Section (1) of Schedule A of the Clearing Agreement, 
``Trade Acceptance,'' has been updated to reflect current OCC 
operational requirements with respect to submission of confirmed 
trades.
     Section (4) of Schedule A, ``Information for Clearing 
Members,'' has been amended to delete specific information sharing 
obligations of OCC to its Clearing Members and to state that the 
information provided to Clearing Members will be in accordance with 
OCC's By-Laws and Rules.
     Section (I)(A) of Schedule B has been amended to delete 
specific references to information that OCC will provide to Clearing 
Members on a daily basis and instead adds a provision that OCC will 
provide NFX with its ``Data Distribution Service'' information for 
regulatory and financial purposes.
     Section (I)(B) of Schedule B has been amended to delete 
certain information sharing provisions and to state that the 
information sharing obligations OCC continues to have may be satisfied 
by posting the required information on OCC's public Web site which 
streamlines the information sharing process.
Conclusion
    The Clearing Agreement has remained substantially similar to the 
Previous Agreement but has been amended in certain respects as 
described above. Generally, the amendments will provide OCC more 
discretion in which products it manages based upon its risk management 
framework, remove unnecessary obligations for each party, and make the 
Clearing Agreement more precise and reflective of current practices. 
The Clearing Agreement also allows OCC to continue to provide clearance 
and settlement purposes while fulfilling its obligations as a self-
regulating organization. As such, as stated above, OCC is proposing to 
provide notice regarding the Clearing Agreement so that OCC may begin 
providing clearing and settlement services for NFX in the second 
quarter of 2015.
2. Statutory Basis
    OCC believes that the proposed rule change is consistent with 
Section 17A(b)(3)(F) of the Securities Exchange Act of 1934, as amended 
(``Act'').\10\ By entering into the Clearing Agreement, OCC will help 
ensure that derivatives contracts traded on NFX will be promptly and 
accurately cleared pursuant to OCC's prudent risk management framework. 
By bringing derivatives contracts traded on NFX within the scope of 
OCC's clearance and settlement processes, OCC believes the proposed 
rule change contributes to the protection of investors and the public 
interest. By ensuring that the derivatives contracts traded on NFX are 
prudently risk managed under OCC's risk management framework, the 
proposed rule change also helps ensure the safeguarding of securities 
and funds in the custody and control of OCC. Finally, the proposed rule 
change is not inconsistent with the existing rules of OCC, including 
any other rules proposed to be amended.
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    \10\ 15 U.S.C. 78q-1(b)(3)(F).
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(B) Clearing Agency's Statement on Burden on Competition

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

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

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

[[Page 12655]]

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate 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 or disapprove 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 email to rule-comments@sec.gov. Please include 
File Number SR-OCC-2015-03 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-OCC-2015-03. 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 
10:00 a.m. and 3:00 p.m. Copies of the filing 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/components/docs/legal/rules_and_bylaws/sr_occ_15_03.pdf.
    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-2015-03 
and should be submitted on or before March 31, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-05479 Filed 3-9-15; 08:45 am]
 BILLING CODE 8011-01-P