Document ID: SEC-2008-1149-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Options Clearing Corp.
Posted Date: 2008-08-19T04:00Z

[Federal Register: August 19, 2008 (Volume 73, Number 161)]
[Notices]               
[Page 48418-48419]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19au08-79]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58346; File No. SR-OCC-2008-08]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Granting Approval of a Proposed Rule Change Relating to its 
Facilities Management Agreements

August 12, 2008.

I. Introduction

    On January 9, 2008, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') 
proposed rule change SR-OCC-2008-08 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal 
was published in the Federal Register on June 19, 2008.\2\ No comment 
letters were received. This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 57963 (June 13, 2008), 
73 FR 34969.
---------------------------------------------------------------------------

II. Description

    The purpose of the proposed rule change is to provide an expedited 
process for reviewing a managed clearing member's request to operate 
without a facilities management agreement (``FMA'').\3\ Under OCC Rule 
309(e), a managed clearing member that desires to terminate an FMA must 
withdraw from membership on the business day before the proposed 
termination unless the Membership/Risk Committee (``Committee'') has 
determined in accordance with Article V, Section 1 of OCC's By-laws 
either that the managed clearing member has the operational capability, 
experience, and competence to perform the managed services required of 
a clearing member or that the managed clearing member has entered into 
another acceptable FMA that will be effective on or before such 
proposed termination.
---------------------------------------------------------------------------

    \3\ Article V, Section 1 of OCC's By-laws, including the 
Interpretations and Policies thereunder, sets forth the requirements 
for membership. Interpretation and Policy.04 permits an applicant 
for clearing membership (``managed clearing member'') to meet 
specified membership requirements by entering into an FMA with 
another clearing member (``managing clearing member'') pursuant to 
which the managing clearing member would perform certain of the 
applicant's obligations as a clearing member (``managed services''). 
An operationally capable clearing member also may elect to outsource 
certain of its obligations as a clearing member, and thereby, become 
a managed clearing member. OCC Rule 309(f).
---------------------------------------------------------------------------

    From March, 2006 to February, 2008, the Committee reviewed three 
requests to terminate FMAs, all of which were approved. In each case, 
the managed clearing member was required to defer terminating its FMA 
until the next regularly scheduled Committee meeting. To provide for a 
more timely review of certain FMA terminations, OCC is adopting a new 
Interpretation and Policy.02 under Rule 309. Under the new policy, a 
managed clearing member desiring to terminate its FMA will be permitted 
to request an expedited review. If OCC consents to an expedited 
review,\4\ the Chairman, the Management Vice Chairman, or the President 
will be authorized to determine whether, as specified in Rule 309(e), a 
managed clearing member had the operational capability, experience, and 
competency to perform the managed services required of a clearing 
member, and to approve or disapprove the termination.
---------------------------------------------------------------------------

    \4\ OCC would use the expedited review process for FMA 
terminations only in cases that present no significant or novel 
issues. Requests involving complex issues would be presented to the 
Committee at its next regularly scheduled meeting.
---------------------------------------------------------------------------

    At the next regularly scheduled Committee meeting, the Committee 
will independently review de novo whether the managed clearing member 
has met the requirements of Rule 309(e) and determine whether or not to 
approve the FMA's termination. Notwithstanding that, if the Committee 
modifies or reverses the action taken by the Chairman, the Management 
Vice Chairman, or the President, any actions taken by OCC or the 
clearing member prior to the modification or reversal would not be 
invalidated, and no rights of any person arising out of such actions 
would be affected. In the unlikely event that the Committee disapproved 
of a termination previously approved by OCC, the clearing member would 
be given a reasonable time either to establish another FMA or to 
withdraw from membership.
    This proposal is comparable to a process recently approved by the 
Commission which permits the expedited review of requests by 
operationally capable clearing members that desire to outsource certain 
of their clearing member obligations by entering into FMAs.\5\ OCC 
believes that the rationale for giving senior management the authority 
to approve FMAs on an interim basis applies equally to FMA 
terminations. OCC believes the proposal strikes a reasonable balance 
between meeting the business requirements of clearing members and 
continuing to

[[Page 48419]]

ensure appropriate review of their operational capabilities.
---------------------------------------------------------------------------

    \5\ Interpretation & Policy.01 to Rule 309. See also Securities 
Exchange Act Release No. 57535 (March 20, 2008), 73 FR 16086 (March 
26, 2008) [SR-OCC-2008-01].
---------------------------------------------------------------------------

III. Discussion

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a clearing agency be designed to assure the safeguarding 
of securities and funds which are in its custody or control or for 
which it is responsible.\6\ The Commission finds the proposed rule 
change to be consistent with this requirement because the senior 
management has the experience and familiarity with clearing members to 
make such decisions and senior management's decision to approve the 
termination of FMAs prior to a scheduled Committee meeting are subject 
to the Committee's subsequent review at its next regularly scheduled 
meeting. Moreover, proposals for expedited review of an FMA termination 
would only occur where, in management's judgment, no significant or 
novel issues are raised by the termination.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular Section 17A of the Act and the rules and regulations 
thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-OCC-2008-08) be and hereby 
is approved.\7\
---------------------------------------------------------------------------

    \7\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-19115 Filed 8-18-08; 8:45 am]

BILLING CODE 8010-01-P