[Federal Register: January 27, 2003 (Volume 68, Number 17)]
[Notices]
[Page 3919-3920]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27ja03-114]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-47199; File No. SR-OCC-2002-25]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
Amending the Definition of Market-Maker in OCC's By-Laws
January 15, 2003.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on October 17, 2002, 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change amends the definition of the term market-
maker as used in OCC's by-laws and rules. Specifically, OCC proposes to
exclude from such definition any person who is required to be treated
as a customer under Commission Rule 15c3-3.\2\
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\2\ 17 CFR 240.15c3-3.
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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.\3\
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\3\ 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
The primary purpose of the proposed rule change is to exclude from
the definition of market-maker in Article I of OCC's By-Laws any person
that is required to be treated as a customer for purposes of Rule 15c3-
3 so that OCC may have a lien on all securities in a market-maker's
account without causing clearing members to be in violation of Rule
15c3-3. The proposed rule change also: (1) Clarifies that OCC's lien on
assets in a customers' account may be enforced to satisfy only those
clearing member obligations arising from the account and (2) eliminates
outdated references in OCC's rules to specialists and specialists'
accounts.
Under Rule 15c3-3, fully paid or excess margin securities of
customers must be maintained by broker dealers, including OCC clearing
members, in a control location.\4\ The Commission staff has informally
stated that securities that are held subject to a lien to secure
obligations of the carrying broker are not deemed to be in a control
location for purposes of Rule 15c3-3.\5\ Broker dealers, however, are
excluded from the definition of customer in Rule 15c3-3(a)(1).\6\
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\4\ Rule 15c3-3(a) defines fully paid excess margin securities.
Rule 15c3-3(c) identifies various means by which broker dealers may
hold securities that meet the control requirement.
\5\ See, e.g., Michael P. Jamroz, The Customer Protection Rule,
57 The Business Lawyer 1069, 1085 (May 2002).
\6\ Rule 15c3-3(a)(1) defines customer as any person from whom
or on whose behalf a broker or dealer has received or acquired or
holds funds or securities for the account of that person. The term
shall not include a broker or dealer, a municipal securities dealer,
or a government securities broker, or government securities dealer.
The term shall, however, include another broker or dealer to the
extent that broker or dealer maintains an omnibus account for the
account of customers of the broker or dealer in compliance with
Regulation T (12 CFR 220.1 through 220.19).
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Under Article VI, ``Clearance of Exchange Transactions,'' Section
3, ``Maintenance of Accounts,'' of OCC's By-Laws, an OCC clearing
member grants OCC a lien on all positions in a market-maker's account
to secure the obligations of the clearing member with respect to that
account (or to secure all obligations of the clearing member, if the
market-maker is a proprietary market-maker). Therefore, a clearing
member could not permit positions of a Rule 15c3-3 customer to be
carried in a market-maker account without risk of violating Rule 15c3-
3. In order to avoid inadvertent violations of Rule 15c3-3, OCC is
amending the definition of market-maker in its by-laws to exclude any
person treated as a customer for purposes of Rule 15c3-3.
This change is advisable because the definition of market-maker as
amended in SR-OCC-2001-07 \7\ includes persons performing market-maker
functions on futures exchanges or security futures markets that are
primarily regulated as futures exchanges and only notice-registered as
national securities exchanges. Such persons may not be brokers or
dealers as defined in Section 3(a)(4) and (5) of the Act and therefore
may not automatically be excluded from the Rule 15c3-3 definition of
customer. The proposed rule change will allow positions of futures
floor traders and other market-makers that are customers under Rule
15c3-3 to be included in a securities customers' account under Article
VI, Section 3(e) or if the positions are carried in a futures customer
account of the books of the clearing member, in a segregated futures
account under Article VI, Section 3(f). Under the futures regulatory
scheme, positions of floor traders and other professionals that are not
affiliated with the carrying futures commission merchant are ordinarily
required to be carried in the segregated funds account.\8\
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\7\ Securities Exchange Act Release No. 44727 (August 20, 2001),
66 FR 45351 (order approving rules for clearance of security
futures).
\8\ See CFTC Reg. 1.3(k) (defining customer as a person other
than an owner or holder of a proprietary account); CFTC Reg. 1.3(y)
(defining proprietary account in a manner that excludes an account
owned or held by an unaffiliated entity); CFTC Reg. 1.20 (requiring
that customer funds be separately accounted for and segregated).
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Article VI, Section 3 of OCC's By-Laws describes the various types
of accounts that clearing members may carry at OCC. Each paragraph in
Section 3 describes the extent of any lien that OCC may have on the
assets in that particular account and with respect to all accounts
except the customers' account, describes the scope of the obligations
collateralized by those assets. Assets in proprietary accounts
generally secure any obligation of the clearing member to OCC whereas
assets in certain other account types secure only obligations arising
from the particular account in which the assets are held. For example,
Article VI, Section 3(f), states that OCC's lien on assets in a
segregated futures account acts as security for all obligations of the
clearing member with respect to such account.
The proposed rule change brings Section 3(e) in conformity with the
other paragraphs in Section 3 by clarifying that OCC's lien on a
securities customers' account secures only the
[[Page 3920]]
obligations of the clearing member to OCC with respect to that account.
This does not represent a substantive change because the same effect is
achieved under OCC's Rule 1104(a), which requires that any proceeds
from assets in the customers' account be returned to the clearing
member or its representative to the extent that such proceeds exceed
obligations arising from the customers' account.
In SR-OCC-2001-07, OCC simplified its description of market-maker
accounts by subsuming ``specialist'' and ``specialist's account''
within the definition of market-maker and market-maker's account,
respectively, in Article I. OCC at that time also adopted conforming
changes to eliminate the terms specialist and specialist's account
where they appeared in Article VI, Section 3. The proposed amendments
to Chapters IV, VI, and XII and to the definition of JBO Participant in
Article I are further conforming changes that eliminate obsolete
references to specialist and specialist's account where they appear
elsewhere in OCC's rules.
OCC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act, as amended, and the rules and
regulations thereunder because it promotes the prompt and accurate
clearance and settlement of securities transactions, fosters
cooperation and coordination with persons engaged in the clearance and
settlement of securities transactions, removes impediments to and
perfects the mechanism of a national system for the prompt and accurate
clearance and settlement of securities transactions, and, in general,
protects investors and the public interest.
(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)(i) of the Act \9\ and Rule 19b-4(f)(1) \10\ thereunder
because it constitutes a stated policy, practice or interpretation with
respect to the meaning, enforcement or administration of an existing
rule. 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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\9\ 15 U.S.C. 78s(b)(3)(A)(i).
\10\ 17 CFR 240.19b-4(f)(1).
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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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street NW., Washington, DC 20549-0609.
Comments may also be submitted electronically at the following e-mail
address: rule-comments@sec.gov. All comment letters should refer to
File No. SR-OCC-2002-25. This file number should be included on the
subject line if e-mail is used. To help us process and review comments
more efficiently, comments should be sent in hardcopy or by e-mail but
not by both methods. 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, 450 Fifth Street NW, Washington, DC 20549. Copies of
such filing will also be available for inspection and copying at the
principal office of OCC. All submissions should refer to the File No.
SR-OCC-2002-25 and should be submitted by February 18, 2003.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-1707 Filed 1-24-03; 8:45 am]
BILLING CODE 8010-01-P