Document ID: SEC-2005-0290-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Options Clearing Corp.
Posted Date: 2005-11-29T05:00Z

[Federal Register: November 29, 2005 (Volume 70, Number 228)]
[Notices]               
[Page 71588-71589]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29no05-114]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52789; File No. SR-OCC-2005-14]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Position Sub-Accounts

November 17, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on September 29, 2005, 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. OCC filed the proposed rule change pursuant to 
Section 19(b)(3)(A)(iii) of the Act,\2\ and Rule 19b-4(f)(4) 
thereunder,\3\ which renders the proposal effective upon filing with 
the Commission. 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\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \3\ 17 CFR 240.19b-4(f)(4).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change sets forth certain interpretations as to 
the treatment of position sub-accounts maintained with respect to one 
or more account types established by a clearing member under a 
particular clearing member number \4\ in the event of the clearing 
member's liquidation.\5\
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    \4\ Clearing member numbers are used to identify clearing 
members within OCC's system. For a variety of reasons, a clearing 
member may use more than one clearing member number. See Securities 
Exchange Act Release No. 47194 (January 15, 2003), 68 FR 3923 
(January 27, 2003) [File No. SR-OCC-2002-26].
    \5\ The proposed change to Article VI, Section 3, Interpretation 
and Policy .02 is conforming in nature and reflects the Commission's 
recent approval of the proposed rule change in Securities Exchange 
Act Release No. 52030 (July 14, 2005), 70 FR 42405 (July 22, 2005) 
[File No. SR-OCC-2003-04].
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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.\6\
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    \6\ The Commission has modified parts of these statements.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    OCC's clearing systems have historically contained functionality 
that identifies the positions of each market maker participating in a 
combined market makers' account.\7\ Position sub-accounting in a 
combined market makers' account is accomplished by using each 
participating market maker's unique acronym to identify the market 
maker's trades for clearance and settlement, including position 
reporting. Because of the large number of transactions effected by 
market makers, reporting their positions on a sub-account basis 
facilitates clearing member reconciliation and balancing processes. 
Position sub-accounting also avoids the need for firms carrying a 
combined market makers' account to allocate assignments to particular 
market makers because OCC assigns exercise notices directly to market 
maker sub-accounts.\8\
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    \7\ A combined market makers' account is confined to the 
exchange transactions of the market makers for which it was 
established. OCC also permits sub-accounting within a clearing 
member's segregated futures professional account. All positions 
carried within each of these account types are maintained on sub-
account basis.
    \8\ Securities Exchange Act Release No. 46735 (October 28, 
2002), 67 FR 67434 (November 5, 2002) [File No. SR-OCC-2002-19].
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    OCC's new clearing system, ENCORE, was designed to extend position 
sub-accounting to other account types that a clearing member may 
maintain with OCC although this functionality has not yet been offered 
to clearing members. Once OCC completes a system and clearing member 
readiness assessment, OCC intends to gradually roll out position sub-
accounting for these other account types to interested clearing 
members. OCC expects the roll-out to commence in or about the second 
quarter of 2006. OCC anticipates that

[[Page 71589]]

interested clearing members will initially limit their use of the new 
sub-accounts to large-volume customers such as institutions and foreign 
affiliates in order to further improve the efficiency of their 
reconciliation processes.
    Like the process used to provide position sub-accounting for market 
makers, unique identifying acronyms will be assigned for use by 
clearing members in creating position sub-accounts with respect to 
other accounts maintained under a given clearing member number. 
Exchange transactions may be directly cleared into a sub-account by 
submitting the applicable assigned acronym in the matching trade 
information. Alternatively, a clearing member would be permitted to 
effect a post-trade instruction in OCC's systems to transfer the 
position to a sub-account. As in the case of market maker sub-accounts, 
OCC will assign exercise notices directly to applicable position sub-
accounts.\9\
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    \9\ Exchange rules require member firms to establish fixed 
procedures for allocating assignments to customers and to inform 
their customers of the method used and how it works. See, e.g., CBOE 
Rule 11.2. OCC will require clearing members that establish customer 
sub-accounts to give each customer for which a sub-account is opened 
a notice disclosing that OCC will assign exercises directly to the 
sub-account.
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    The potential increase in the number of sub-accounts that may be 
carried on OCC's books, coupled with the fact that sub-accounts would 
now be permitted to be maintained in accounts in which positions also 
are carried on an omnibus basis, has led OCC to conclude that it would 
be advisable to formalize existing interpretations regarding the 
treatment of position sub-accounts in the event of a clearing member 
liquidation. For such purposes, market-maker sub-accounts always have 
been treated as a single account. The proposed rule change codifies 
this existing interpretation and extends it to the sub-accounts that 
will now be permitted to be carried in other account types. In order to 
provide for a controlled implementation of position sub-accounting with 
respect to other account types, a further interpretation has been added 
which permits OCC to limit, for systemic or operational reasons, the 
overall number of sub-accounts that a clearing member may maintain with 
respect to particular account types. As is the case today, OCC would 
not limit the number of market professional sub-accounts a clearing 
member could carry in recognition of their role in providing market 
liquidity.
    OCC believes that the proposed change is consistent with Section 
17A of Act because by clarifying the application of OCC's liquidation 
rules to position sub-accounts carried by clearing members it better 
enables OCC to safeguard the securities and funds in its possession or 
for which it is responsible. The proposed rule change is not 
inconsistent with the existing rules of OCC, including any other rules 
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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(iii) of the Act \10\ and Rule 19b-4(f)(4) \11\ promulgated 
thereunder because the proposal effects a change in an existing service 
of OCC that (A) does not adversely affect the safeguarding of 
securities or funds in the custody or control of OCC or for which it is 
responsible and (B) does not significantly affect the respective rights 
or obligations of OCC or persons using the service. At any time within 
sixty days of the filing of the proposed rule change, the Commission 
may summarily abrogate such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act.
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    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 17 CFR 240.19b-4(f)(4).
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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-2005-14 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-OCC-2005-14. 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-2005-14 
and should be submitted on or before December 20, 2005.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
Jonathan G. Katz,
Secretary.
[FR Doc. E5-6623 Filed 11-28-05; 8:45 am]

BILLING CODE 8010-01-P