[Federal Register: April 25, 2003 (Volume 68, Number 80)]
[Notices]
[Page 20417-20418]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25ap03-83]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-47707; File No. SR-OCC-2002-04]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Rule Change, as Amended, Relating to Money Market Funds as Margin
Collateral
April 21, 2003.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on January 29, 2002, the
Options Clearing Corporation (``OCC'') filed with the Securities and
Exchange Commission (``Commission'') proposed rule change SR-OCC-2002-
04. Notice of the proposal was published in the Federal Register on
January 16, 2003.\2\ No comment letters were received. The Commission
granted approval of the proposed rule change on March 31, 2003.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 47146 (January 9, 2003),
68 FR 2385.
\3\ Securities Exchange Act Release No. 47599, 68 FR 16849
(April 7, 2003).
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OCC filed Amendment I to the proposed rule change on November 19,
2002. The changes made by Amendment I were inadvertently omitted from
the notice and order approving the proposed rule change. Accordingly,
the Commission is publishing this notice to solicit comments on
Amendment I from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Amendment I modified SR-OCC-2002-04 which expanded the acceptable
forms of margin collateral to include shares of money market funds
meeting specified criteria.
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.\4\
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\4\ 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 filed Amendment I after discussions with its clearing members
and fund issuers caused OCC to identify several areas in which SR-OCC-
2002-04 needed to be clarified or modified. Amendment I made the
following changes to SR-OCC-2002-04:
[sbull] Notification of Noncompliance with Requirements. SR-OCC-
2002-04 as originally filed required a fund to immediately notify OCC
of any noncompliance with the requirements of rule 604(b)(3)(i).
Amendment I amended the filing to provide additional details as to
when, to whom, and how such notice should be given. This additional
detail will help ensure that OCC receives appropriate and timely notice
of noncompliance in order to take such action as it deems necessary to
respond to the event causing the noncompliance.
[sbull] Valuation of Deposited Shares. SR-OCC-2002-04 as originally
filed provided that money market fund shares would be valued at 98% of
current net asset value unless a lower valuation was prescribed by
OCC's Membership/Margin Committee. While the funds that will qualify
for deposit under rule 604 are designed to maintain a stable net asset
value of $1.00, net asset value at any point in time may be slightly
greater or less than $1.00. Accordingly, OCC filed Amendment I to
provide that deposited shares would be valued at 98% of current market
value. In addition, Amendment I provided that OCC may prescribe a lower
valuation in the event OCC receives notice from a fund that it no
longer meets the qualification standards applicable to accept the
fund's shares.
[sbull] Concentration Requirements. SR-OCC-2002-04 as originally
filed required that no single registered shareholder have an interest
of 10% or more in a fund. This standard was intended to limit the
possibility that a redemption decision by a single shareholder could
adversely affect the fund's ability to redeem shares in an orderly
manner. Fund sponsors have advised OCC that this requirement may
severely restrict their ability to construct a fund tailored to meet
OCC's qualification standards as it requires a minimum of at least 10
registered shareholders before the fund meets OCC's eligibility
standards. As a result, in Amendment I OCC revised its concentration
restriction to provide that no more than 5% of the total number of
outstanding shares of any one fund may be deposited by a single
clearing member with OCC. OCC believes that this standard reasonably
addresses concentration concerns because it limits OCC's exposure to a
single fund on the default of the depositing clearing member.
[sbull] Compliance with CFTC Regulation 1.25. SR-OCC-2002-04 as
originally filed required a fund to comply with CFTC Regulation 1.25,
which sets forth the terms and conditions applicable to a futures
commission merchant's or a derivatives clearing organization's
investment of futures customer funds in permitted instruments. CFTC
Regulation 1.25(c) specifies requirements for investments in money
market mutual funds. This requirement was intended to ensure that
shares in all approved funds could be deposited by clearing members
registered as FCMs in their segregated futures account at OCC to the
extent such shares were acquired with futures customer funds. CFTC
Regulation 1.25(c), however, would not apply to money market fund
shares deposited as margin for OCC accounts other than for segregated
futures
[[Page 20418]]
accounts, and OCC decided not to require fund compliance with CFTC
Regulation 1.25. However, as a reminder to clearing members, Amendment
I modified rule 604(b)(3)(v) to provide that the deposit of money
market fund shares with respect to a segregated futures account
constitutes a clearing member's representation that the fund meets the
requirements of CFTC Regulation 1.25.
[sbull] Redemption. SR-OCC-2002-04 as originally filed required a
fund to waive any right it may otherwise have to postpone the payment
of redemption proceeds and the right to redeem shares in kind and to
agree to redeem shares in cash not later than the business day
following a redemption request by OCC except when redemptions could not
be effected due to unscheduled closings of the Federal Reserve Banks or
the New York Stock Exchange or other specified emergency condition. OCC
has concluded that the phrase other specified emergency condition is
unclear and has determined to delete it. OCC believes that, as amended,
this clause of the rule will be more consistent with OCC's original
intentions with respect to permitted exceptions to redemption requests.
As well as the above changes, Amendment I makes a minor
modification to rule 604 in order to distinguish money market funds
from fund shares as proposed in File No. SR-OCC-2002-22.\5\
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\5\ Securities Exchange Act Release No. 46914 (November 26,
2002), 67 FR 72261 (December 4, 2002).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
OCC does not believe that Amendment I would have an impact on or
impose a burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received from Members, Participants, or Others
No written comments relating to Amendment I have been solicited or
received. OCC will notify the Commission of any written comments
received by OCC.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Commission finds that Amendment I is consistent with the
requirements of the Act and the rules and regulations thereunder and
particularly with the requirements of section 17A(b)(3)(F).\6\ Section
17A(b)(3)(F) requires that the rules of a clearing agency be designed
to assure the safeguarding of securities and funds which are in the
custody or control of the clearing agency or for which it is
responsible. The Commission has already determined that the proposed
rule change in SR-OCC-2002-04 meets the requirements in section
17A(b)(3)(F). Accordingly, the Commission finds that the changes made
to SR-OCC-2002-04 by Amendment I have been designed so that they also
should enable OCC to ensure that it is able to safeguard the securities
and funds that are within its custody or control or for which it is
responsible.
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\6\ 15 U.S.C. 78q-1(b)(3)(I).
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The Commission finds good cause for approving SR-OCC-2002-04, as
amended by Amendment I, prior to the thirtieth day after publication of
notice because by so approving, OCC will be able to implement SR-OCC-
2002-04, which was previously approved by the Commission, with the
changes made by Amendment I.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment I 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-2002-04. 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-2002-04 and should
be submitted by May 16, 2003.
V. 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 with the requirements of section 17A of the Act and the
rules and regulations thereunder applicable.
It is therefore ordered, pursuant to section 19(b)(2) of the Act,
that the proposed rule change as amended (File No. SR-OCC-2002-04) be,
and hereby is, approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-10260 Filed 4-24-03; 8:45 am]
BILLING CODE 8010-01-P