Document ID: SEC-2010-1626-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Options Clearing Corp.
Posted Date: 2010-10-25T04:00Z

[Federal Register: October 25, 2010 (Volume 75, Number 205)]
[Notices]               
[Page 65538-65539]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25oc10-137]                         

[[Page 65538]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63120; File No. SR-OCC-2010-17]

 
Self-Regulatory Organizations; the Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Clearing Member Trade Assignment Arrangements

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ notice is hereby given that on October 4, 2010, The Options 
Clearing Corporation (``OCC'') filed with the Securities and Exchange 
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) \3\ so that the proposal was 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 the 
Substance of the Proposed Rule Change

    The proposed rule change would provide a new service for clearing 
members that are parties to a Clearing Member Trade Assignment 
(``CMTA'') arrangement.

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.

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

    The purpose of the proposed rule change is to provide a new service 
for clearing members that are parties to a CMTA arrangement. Clearing 
members electing to participate in the new service will authorize OCC 
to facilitate on a non-guaranteed basis settlement of commissions and 
fees \4\ relating to position transfers effected between the clearing 
members pursuant to their CMTA arrangement. This service is being 
offered in response to a request made by OCC's Roundtable.\5\
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    \4\ Fees would include exchange, clearing, and other fees 
related to the transaction.
    \5\ The OCC Roundtable is an OCC sponsored advisory group 
comprised of representatives from OCC's participant exchanges, OCC, 
a cross-section of OCC clearing members, and industry service 
bureaus. The Roundtable considers operational improvements that may 
be made to increase efficiencies and lower costs in the options 
industry. As a separate but related matter, the Roundtable also 
asked OCC to eliminate the requirement that clearing members to a 
CMTA arrangement represent they have entered into a ``written'' 
agreement when registering their arrangement in order to support 
their ability to enter into agreements electronically.
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1. Background
    CMTA is the process by which an authorized executing clearing 
member directs the transfer of an exchange transaction to a designated 
account of a carrying clearing member. To correct mis-clears and other 
bona fide processing errors, an executing clearing member also may 
transfer to a carrying clearing member as a part of their CMTA 
arrangement positions that resulted from transactions that were 
directly cleared into an account of an executing clearing member but 
were intended for give-up to the carrying clearing member. Currently, 
fees and commissions that are owed by the carrying clearing member to 
the executing clearing member with respect to these transfers are 
tracked and billed bilaterally between the firms. This process, which 
has long been considered inefficient, results in increased collection 
times and reconciliation problems for the firms involved. At the 
request of the Roundtable, OCC has developed a centralized solution to 
reduce some of these inefficiencies. OCC therefore proposes to modify 
its systems and rules to provide for the non-guaranteed settlement of 
fees and commissions associated with position transfers effected 
pursuant to registered CMTA arrangements.
2. Rule Changes
    OCC proposes to add system functionality to support the calculation 
and non-guaranteed settlement of fees and commissions based on entries 
made by the executing clearing member. Firms desiring to make use of 
this functionality will be required to reregister their CMTA 
arrangement and specifically authorize OCC to make such settlements 
without any further authorization from the carrying clearing member. 
Accordingly, OCC is proposing to amend Rule 403, relating to CMTA 
processing, to provide that clearing members electing to use this new 
service must register that aspect of their CMTA arrangement with OCC. 
Such registration, when accepted by OCC's systems, will authorize an 
executing clearing member to make entries into OCC's systems with 
respect to fees and commissions subject to any system checks imposed by 
OCC.\6\ Such registration will also authorize OCC to settle on a non-
guaranteed basis the total of such amounts on the business day next 
following the date the entries were made without any further 
authorization from the carrying clearing member. If the clearing 
members terminate their CMTA arrangement, OCC would be authorized to 
settle any fee and commission amounts entered prior to the effective 
time of such termination as determined in accordance with Rule 403.
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    \6\ For commissions, OCC's systems will be configured to permit 
clearing members to specify either a particular commission rate or a 
flat commission rate, provided that no commission rate could exceed 
$9.99/contract and no flat rate could exceed $50,000 per entry. For 
fees, OCC's systems will be configured to permit clearing members to 
input any combination of fees subject to a $50,000 cap per 
transaction. Use of this service by registered clearing members 
remains optional (i.e., OCC's systems will not require registered 
firms to input fee and commission information in order to effect a 
CMTA-related transfer).
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    Settlement of fees and commissions will be done on a non-guaranteed 
basis pursuant to changes being made to Rule 504. Rule 504 currently 
provides for OCC's money-only settlement service (proposed to be 
renamed ``non-guaranteed settlement service'') through which clearing 
members may specifically authorize OCC to effect non-guaranteed 
settlements of monies owed between two firms relating to transactions 
cleared by OCC. A new provision will be added to Rule 504 in order to 
accommodate the settlement of fees and commissions pursuant to an 
effectively registered CMTA arrangement. The new provision will permit 
OCC, as agent, to calculate and effect settlement of the aggregate of 
such amounts based on entries made by the executing clearing member to 
the CMTA arrangement without any further consent of the carrying 
clearing member. OCC will have no obligation to verify the executing 
clearing member's entries, and any disputes between the firms regarding 
such amounts will have to be resolved between themselves. Settlements 
will occur the business day following the business day on which the 
executing clearing member inputs necessary information into OCC's

[[Page 65539]]

systems. Like other settlements effected pursuant to Rule 504, these 
settlements will not be guaranteed by OCC. If a settlement draft for 
these amounts against a clearing member's bank account is not honored, 
OCC will have no obligation to effect any payment of commissions or 
fees to the executing clearing member. Likewise, OCC will have no 
obligation to effect these settlements if OCC has suspended an 
executing or carrying clearing member.
    Finally, OCC proposes to insert another new provision into Rule 
504. First, the new provision will reflect OCC's current practice of 
not processing non-guaranteed settlements until settlements pursuant to 
Rule 502 (for premium, mark-to-market, and cash exercise and assignment 
settlement amounts) and 605 (margin deficits) have been completed. 
Second, it will also permit OCC to defer processing of non-guaranteed 
settlements on a business day. Affected clearing members will be 
notified of OCC's decision and of the business day non-guaranteed 
settlements will be resumed. This authority will provide OCC with 
flexibility to defer processing non-guaranteed settlements on a given 
business day in the event a significant processing delay makes such 
action advisable or appropriate.
    OCC states that the proposed rule change is consistent with Section 
17A of the Act \7\ because it would provide a centralized service to 
facilitate collection of fees and commissions relating to transfers 
between clearing members that are parties to a CMTA arrangement thereby 
increasing the efficiency of the fee and commission collection process 
and reducing costs associated therewith. Furthermore, OCC states that 
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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    \7\ 15 U.S.C. 78q-1.
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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

    OCC has not solicited or received written comments relating to the 
proposed rule change. OCC will notify the Commission of any written 
comments it receives.

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 \8\ and Rule 19b-4(f)(4) \9\ because it 
effects a change in an existing service of a registered clearing agency 
that does not adversely affect the safeguarding of securities or funds 
in the custody or control of the clearing agency or for which it is 
responsible and does not significantly affect the respective rights or 
obligations of the clearing agency or persons using the service. At any 
time within 60 days of the filing of the proposed rule change, the 
Commission summarily may temporarily suspend 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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    \8\ Above note 2.
    \9\ Above note 3.
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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 No. SR-OCC-2010-17 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-OCC-2010-17. 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 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 filing also will be available for 
inspection and copying at OCC's principal office and on OCC's Web site 
at (http://www.theocc.com/about/publications/bylaws.jsp). 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 No. SR-OCC-2010-17 and should be 
submitted on or before November 15, 2010.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-26802 Filed 10-22-10; 8:45 am]
BILLING CODE 8011-01-P