Document ID: SEC-2012-1604-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Options Clearing Corp.
Posted Date: 2012-10-01T04:00Z

[Federal Register Volume 77, Number 190 (Monday, October 1, 2012)]
[Notices]
[Pages 59998-60000]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-24038]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67921; File No. SR-OCC-2012-17]

Self-Regulatory Organizations; The Options Clearing Corporation; 
Advance Notice Relating to the Margining of Segregated Futures Customer 
Accounts on a Gross Basis

September 25, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'')\1\ and Rule 19b-4(n)(1)(i),\2\ notice is hereby given that on 
September 14, 2012, The Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
advance notice described in Items I and II below, which Items have been 
prepared primarily by OCC. The Commission is publishing this notice to 
solicit comments on the advance notice from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4(n)(i).
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I. Clearing Agency's Statement of the Terms of Substance of the Advance 
Notice

    The proposed rule change would allow OCC to become compliant with 
Commodity Futures Trading Commission (``CFTC'') Rule 39.13(g)(8)(i), 
which requires the margining of segregated futures customer accounts on 
a gross basis.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Advance Notice

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change and advance notice and discussed any comments it received on the 
proposed rule change and advance notice. The text of these statements 
may be examined at the places specified in Item IV below. The clearing 
agency has prepared summaries, set forth in sections A, B and C below, 
of the most significant aspects of such statements.\3\
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    \3\ The Commission has modified the text of the summaries 
prepared by OCC.
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(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Advance Notice

    The purpose of this proposed rule change is to provide for the 
margining of OCC segregated futures customer accounts on a gross basis, 
as required by CFTC Rule 39.13(g)(8)(i).\4\
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    \4\ 17 CFR 39.13(g)(8)(i).

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[[Page 59999]]

The CFTC's Customer Gross Margin Rule

    On October 18, 2011, the CFTC issued final regulations implementing 
many of the new statutory core principles for CFTC-registered 
derivatives clearing organizations (``DCOs'') enacted under the Dodd-
Frank Wall Street Reform and Consumer Protection Act (the ``Dodd-Frank 
Act''). As a registered DCO (as well as a registered securities 
clearing agency), OCC has previously implemented rule changes designed 
to bring OCC into compliance with CFTC rules applicable to DCOs that 
went into effect on January 9, 2012 \5\ and May 7, 2012.\6\ OCC 
believes it is necessary to amend its Rules in order to ensure 
compliance with the gross margin rule, which requires a DCO to 
``collect initial margin on a gross basis for each clearing member's 
customer account(s) equal to the sum of the initial margin amounts that 
would be required by the derivatives clearing organization for each 
individual customer within that account if each individual customer 
were a clearing member.'' \7\ The CFTC gross margin rule goes into 
effect on November 8, 2012; however, OCC intends to begin complying 
with the gross margin rule on Monday November 5, 2012 as described 
herein.
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    \5\ See SR-OCC-2011-18.
    \6\ See SR-OCC-2012-06.
    \7\ Derivatives Clearing Organization General Provisions and 
Core Principles, 76 FR 69334, 69439 (November 8, 2011).
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OCC's System for Calculating Margin

    OCC currently calculates margin requirements for each clearing 
member's segregated futures customer account held at OCC on a net basis 
by applying OCC's System for Theoretical Analysis and Numerical 
Simulations (``STANS''). STANS calculates margin with respect to each 
account of a clearing member, including each clearing member's futures 
customer account(s), on a net basis, i.e., considering the positions of 
a clearing member, including positions held in each clearing member's 
futures customer account(s), as if they are part of one portfolio and 
margining accordingly. STANS includes both a net asset value (``NAV'') 
component and a risk component. The NAV component marks all positions 
to market and nets long and short positions to determine the NAV of 
each clearing member's portfolio of customer positions. The NAV 
component represents the cost to liquidate the portfolio at current 
prices by selling the net long positions and buying in the net short 
positions. The risk component is estimated by means of an expected 
shortfall risk measure obtained from ``Monte Carlo'' simulations 
designed to measure the additional asset value required in any 
portfolio to eliminate an unacceptable level of risk that the portfolio 
would liquidate to a deficit.
    OCC presently lacks sufficient information about individual 
customer positions to calculate margin at the level of each individual 
customer. However, OCC has been coordinating with other DCOs to 
establish an industry-wide mechanism for complying with the customer 
gross margin rule as applied to futures customer accounts. Pursuant to 
this new system, each DCO's clearing members will submit data files to 
the DCO identifying positions by numerical customer identifiers.\8\ OCC 
will use this information to calculate margins, using STANS, for each 
customer identifier of a clearing member and to aggregate those margin 
calculations to determine the total futures customer margin requirement 
for the clearing member's segregated futures customer account(s) held 
at OCC.\9\ OCC will then compare the aggregate positions reported by 
each clearing member with its own records and make any needed 
adjustments to the margin calculation to ensure all positions on OCC's 
books are properly margined.
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    \8\ The position data provided to OCC by clearing members will 
not include (a) information with respect to the allocation of margin 
assets to particular customers, nor (b) information with respect to 
settlement obligations arising from the exercise, assignment or 
maturity of cleared contracts. For this reason, OCC will treat all 
margin assets and settlement obligations for each account to which 
the gross margin rule applies as being in sub-accounts of the 
Clearing Member. OCC will calculate margin, using STANS, separately 
for each sub-account and will aggregate the calculated margin 
requirements at the level of the clearing member's segregated 
futures customer account to which the sub-accounts relate.
    \9\ OCC currently carries the following account types that are 
segregated pursuant to Section 4d of the Commodity Exchange Act: 
Segregated Futures Accounts, Segregated Futures Professional 
Accounts, non-Proprietary X-M accounts, and internal non-proprietary 
cross-margining accounts. All such accounts would be margined on a 
gross basis under the proposed amendments to Rule 601.
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Proposed By-Law and Rule Changes
    The proposed changes to OCC's Rules provide for the calculation of 
margin for segregated futures customer accounts on a gross basis and 
mandate submission of the clearing member data files necessary to allow 
OCC to calculate margin at the level of each futures customer. In the 
event that the data included in these data files is incomplete (for 
example, if OCC shows positions held in a clearing member's segregated 
futures accounts, but those positions are not reflected in the data 
file), OCC will create a separate sub-account to be used for margin 
calculation purposes only. Positions recorded on OCC's books and 
records, but not reflected in the data file, will be attributed to this 
sub-account and a margin amount will be calculated for the sub-account. 
This margin amount will be added to a clearing member's margin 
requirement. OCC has determined to adopt this conservative approach to 
dealing with discrepancies between its own records and clearing member 
data files in order to ensure that OCC does not collect an inadequate 
amount of margin from clearing members.
* * * * *
    The proposed changes to OCC's By-Laws 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.

(B) Clearing Agency's Statement on Burden on Competition

    OCC does not believe that the proposed changes contained in the 
advance notice would impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.

(C) Clearing Agency's Statement on Comments on the Advance Notice 
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 Advance Notice and Timing for 
Commission Action

    The proposed changes contained in the advance notice may be 
implemented pursuant to Section 806(e)(1)(G) of Clearing Supervision 
Act \10\ if the Commission does not object to the proposed changes 
within 60 days of the later of (i) the date that the advance notice was 
filed with the Commission or (ii) the date that any additional 
information requested by the Commission is received. The clearing 
agency shall not implement the proposed changes contained in the

[[Page 60000]]

advance notice if the Commission objects to the proposed changes.
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    \10\ 12 U.S.C. 5465(e)(1)(G).
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    The Commission may extend the period for review by an additional 60 
days if the proposed changes raise novel or complex issues, subject to 
the Commission providing the clearing agency with prompt written notice 
of the extension. Proposed changes may be implemented in fewer than 60 
days from the date the advance notice is filed, or the date further 
information requested by the Commission is received, if the Commission 
notifies the clearing agency in writing that it does not object to the 
proposed changes and authorizes the clearing agency to implement the 
proposed changes on an earlier date, subject to any conditions imposed 
by the Commission.
    OCC has also filed the advance notice as a proposed rule change 
pursuant to Section 19(b)(1) of the Act \11\ and Rule 19b-4 
thereunder.\12\ Pursuant to those provisions, 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.
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    \11\ 15 U.S.C. 78s(b)(1).
    \12\ 17 CFR 240.19b-4.
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    The clearing agency shall post notice on its web site of proposed 
changes that are implemented.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. 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-2012-17 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-2012-17. 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 advance notice that are filed 
with the Commission, and all written communications relating to the 
advance notice 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 filings 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/components/docs/legal/rules_and_bylaws/sr_occ_12_17.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-2012-17 
and should be submitted on or before October 22, 2012.

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-24038 Filed 9-28-12; 8:45 am]
BILLING CODE 8011-01-P