Document ID: SEC-2011-1404-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Options Clearing Corp.
Posted Date: 2011-09-19T04:00Z

[Federal Register Volume 76, Number 181 (Monday, September 19, 2011)]
[Notices]
[Pages 58061-58063]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-23976]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65338; File No. SR-OCC-2011-12]

Self-Regulatory Organizations; Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Adopt Fitness Standards for 
Directors, Clearing Members, and Others

September 14, 2011.
    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 August 31, 2011, The Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``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).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the proposed rule change is to establish fitness 
standards for directors, clearing members, and others.

[[Page 58062]]

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 these 
statements.

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

    The purpose of this proposed rule change is to facilitate 
compliance by OCC with new core principles (``Core Principles'') 
applicable to derivatives clearing organizations (``DCOs'') that are 
set forth in the CEA, as amended by the Dodd-Frank Act. In particular, 
new DCO Core Principle O requires DCOs to establish fitness standards 
for directors, clearing members and certain other individuals.
Background
    The Core Principles for DCOs are set forth in the CEA and consist 
of a number of governing principles to which a DCO is required to 
adhere. OCC is registered as a DCO with the Commodity Futures Trading 
Commission (the ``CFTC'') under Section 5b of the CEA, and clears 
commodity futures and commodity options traded on five futures 
exchanges subject to the CFTC's jurisdiction. Title VII of the Dodd-
Frank Act amended the CEA to expand existing Core Principles and to add 
certain new Core Principles. The applicable Dodd-Frank amendments to 
the CEA become effective July 16, 2011. In January 2011, the CFTC 
published proposed rules (the ``Proposed Rules'') to implement the Core 
Principles, as amended and expanded by the Dodd Frank Act. The Proposed 
Rules propose certain minimum criteria for complying with the Core 
Principles, and propose certain clarifications of the more ambiguous 
provisions of the Core Principles. The Proposed Rules have not been 
adopted and will not be effective until 60 days following the date on 
which the CFTC publishes final rules implementing the Core Principles.
    Core Principle O provides that each DCO must: (i) Establish 
governance arrangements that are transparent (I) to fulfill public 
interest requirements and (II) to permit the consideration of the views 
of both owners and participants, and (ii) establish and enforce 
appropriate fitness standards for (I) directors, (II) members of any 
disciplinary committee, (III) members of the DCO, (IV) any other 
individual or entity with direct access to the settlement or clearing 
activities of the DCO, and (V) any party affiliated with any of the 
above. OCC's existing governance arrangements satisfy the transparency 
requirements of subparagraph (i) of Core Principle O. OCC is proposing 
to adopt the Fitness Standards in order to assure compliance with 
subparagraph (ii) of Core Principle O.
Description of Proposed Fitness Standards
    The proposed Fitness Standards, which are attached as Exhibit 5 to 
this rule filing, comply with Core Principle O by establishing minimum 
standards for directors and clearing members, as well as affiliates of 
such directors and clearing members.\3\ The proposed Fitness Standards 
are generally similar to fitness standards adopted by the Depository 
Trust and Clearing Corporation.
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    \3\ Pursuant to a conversation among OCC, the Commission and the 
CFTC, the CFTC has indicated that the proposed rule change may 
become effective after July 16, 2011 without impacting OCC's status 
as a DCO.
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    The Fitness Standards incorporate the Proposed Rule's minimum 
fitness standards for directors and clearing members, including the 
basis for refusal to register a person under Section 8a(2) of the CEA 
and, for directors only, the absence of a significant history of 
serious disciplinary offences, such as those that would be 
disqualifying under Section 1.63 of the CFTC's regulations. The Fitness 
Standards do not establish criteria for members of the disciplinary 
committee or for persons ``with direct access to the settlement or 
clearing activities'' of OCC (``Access Persons''). In OCC's case, all 
members of disciplinary committees\4\ are directors of the Corporation 
and will be subject to the Fitness Standards as such. With respect to 
Access Persons, neither the CEA nor the Proposed Rules provide any 
explicit guidance as to the persons intended to be included in the 
phrase ``any other individual or entity with direct access to the 
settlement or clearing activities of the [DCO].'' Similarly, the term 
``direct access'' is not defined in the CEA or the Proposed Rules. 
However, Core Principle O is closely modeled on existing designated 
contract market (``DCM'') Core Principle 14, which also requires that 
fitness standards be established for directors, members and ``any other 
persons with direct access to the facility.'' The CFTC has previously 
issued guidance on DCM Core Principle 14 and interpreted ``persons with 
direct access to the facility'' to include ``non-member market 
participants who are not intermediated and do not have [member] 
privileges, obligations, responsibilities or disciplinary authority.'' 
This interpretation suggests that ``access'' is intended to mean the 
type of access that a member would have. OCC believes that by analogy 
``persons with direct access to the settlement or clearing activities'' 
of a DCO, as used in Core Principle O, is intended to refer to persons 
with access to submit transactions for clearing or to give instructions 
to OCC regarding accounts or transactions or otherwise have access to 
the clearing system in a manner similar to the access that a Clearing 
Member would have. OCC also does not read ``any other individual or 
entity with direct access to the settlement or clearing activities of 
the [DCO]'' to include OCC employees or service providers such as 
settlement banks. Accordingly, OCC believes that there are presently no 
persons with ``direct access'' to the settlement and clearing 
activities of OCC other than clearing members.
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    \4\ OCC has no standing disciplinary committee. Disciplinary 
committees are formed on an ad hoc basis. See OCC Rule 1202(a).
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Proposed By-Law Changes
    Article III (Board of Directors) and Article V (Clearing Members) 
set forth qualifications for directors and clearing members, 
respectively. The Interpretations and Policies under the appropriate 
sections of both Articles are being amended to incorporate the 
applicable Fitness Standards by reference.
    OCC believes that the proposed changes to its By-Laws and Rules are 
consistent with the purposes and requirements of Section 17A of the 
Exchange Act, because they are designed to permit OCC to perform 
clearing services for 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. The proposed rule change is not inconsistent with any rules 
of OCC.

[[Page 58063]]

(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 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 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 Commissions 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-2011-12 on the 
subject line.

Paper Comments

     Send paper comments 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-2011-12. 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 Web site viewing and 
printing in the Commission's Public Reference Section, 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 filings will also be available for 
inspection and copying at the principal office of OCC and on OCC's Web 
site at http://www.optionsclearing.com/components/docs/legal/rules_and_bylaws/sr_occ_11_12.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-2011-12 
and should be submitted on or before October 11, 2011.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-23976 Filed 9-16-11; 8:45 am]
BILLING CODE 8011-01-P