[Federal Register: March 27, 2008 (Volume 73, Number 60)]
[Notices]
[Page 16405-16407]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27mr08-92]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57543; File No. SR-OCC-2008-03]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to Cross-Margining
March 20, 2008.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on January 29, 2008, 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. 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\
thereunder 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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change amends Article VI, Clearance of Exchange
[[Page 16406]]
Transactions, Section 24, Cross-Margining With Participating CCOs,
paragraph (c) of OCC's By-Laws so that additional OCC-cleared products
may be more easily added in the future by amending only the relevant
Cross-Margining Agreement and not the By-Law provision.
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\
---------------------------------------------------------------------------
\4 \ The Commission has modified parts of these statements.
---------------------------------------------------------------------------
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Existing cross-margining programs between OCC and certain other
commodity clearing organizations (each a ``CCO'') permit positions in
index futures and options on such futures cleared by the CCO to be
cleared in a special proprietary or non-proprietary cross-margining
account (``X-M Account'') at the CCO which is paired with a
corresponding X-M account (proprietary or non-proprietary, as the case
may be) at OCC in which securities options are cleared. A non-
proprietary X-M account is limited to options market-makers and other
``market professionals.'' The non-proprietary cross-margining accounts
are treated as futures customer accounts in that they are carried
subject to the segregation provisions of Section 4d of the Commodity
Exchange Act rather than as securities accounts subject to the
Commission's Rule 15c3-3 and other customer protection rules under the
Act. Paired X-M Accounts may be established by a ``joint clearing
member'' of OCC and the CCO or by a ``pair of affiliated clearing
members,'' one of which is a clearing member of OCC and the other of
which is a clearing member of the CCO. The paired X-M Accounts are
treated for margin purposes as if they were a single account, making it
possible to margin the paired X-M Accounts based on the net risk of the
potentially offsetting positions within them.
In referring to the types of cleared contracts that may be carried
in an X-M Account at OCC, paragraph (c) of Section 24 of Article VI of
OCC's By-Laws presently refers only to options. The purpose of the
proposed rule change is to expand this reference to include security
futures, as defined in the Act and in the CEA, on exchange-traded funds
(``ETFs'') based on broad-based securities indices and any other
cleared contract, as defined in OCC's By-Laws, that has been approved
for cross-margining by OCC's Board of Directors.\5\ The precise types
of contracts that can be included in X-M Accounts in any particular
cross-margining program are identified in a Cross-Margining Agreement
between OCC and the CCO. The existing cross-margining programs are
limited to index options and OCC-cleared options on ETFs and index
futures cleared by a CCO. The immediate reason for expanding the types
of cleared products that may be included in X-M Accounts at OCC is to
permit security futures on ETFs based on broad-based securities indices
to be included.\6\ However, OCC has determined to amend Article VI,
Section 24(c) to make it as broad as possible so that additional OCC-
cleared products may be added in the future by amending only the
relevant Cross-Margining Agreement and not this By-Law provision.
---------------------------------------------------------------------------
\5 \ ``Cleared contract'' is defined in Article I of OCC's By-
Laws to mean ``a cleared security or a commodity future or futures
option that is cleared by the Corporation.'' The term ``cleared
security'' is defined as ``an option contract (other than a futures
option), a security future or a BOUND.'' In effect, therefore, the
term ``cleared contract'' includes any derivative contract cleared
by OCC.
\6 \ The Chicago Mercantile Exchange Inc. (``CME'') also clears
security futures contracts, which are reported to OCC under the
terms of the Associated Clearinghouse Agreement between the
organizations. Securities Exchange Act Release No. 46653 (October
11, 2002), 67 FR 64689 (October 21, 2002) (File No. SR-OCC-2002-07).
Under the terms of the OCC-CME cross-margining agreement, such CME-
cleared security futures are eligible contracts for purposes of
cross-margining. However, OCC will not treat security futures on
broad-based indices as eligible contracts until the CFTC issues an
order providing relief from certain provisions of Section 4d(a) of
the Commodity Exchange Act to permit the inclusion of such contracts
as eligible contracts for purposes the OCC-CME cross-margining
program.
---------------------------------------------------------------------------
The inclusion of security futures in cross-margining is not novel.
Under Article VI, Section 25 of the By-Laws, OCC's own internal cross-
margining program for non-proprietary accounts already includes OCC-
cleared security futures along with all other cleared securities that
may be cross-margined against any OCC-cleared futures products that are
cleared by OCC in its capacity as a derivatives clearing organization
regulated by the CFTC. Unlike the other cross-margining accounts, the
internal cross-margining accounts are not limited to index options,
index futures, and OCC-cleared ETF options. OCC has broad authority to
designate any cleared contract as eligible for these accounts provided
the contract has sufficient price correlation with other eligible
contracts to provide significant risk reduction when positions are on
opposite sides of the market. As a result, no rule change is needed to
allow OCC to include futures on ETFs in these accounts. Moreover,
cross-margining of all OCC-cleared securities with OCC-cleared futures
and futures options occurs automatically in the firm account and other
proprietary accounts because OCC's By-Laws permit any OCC-cleared
contract to be carried in these accounts.
The proposed rule change is consistent with the purposes and
requirements of Section 17A of the Act because it enhances the utility
of existing cross-margining programs by permitting the inclusion of
products that did not exist at the time the cross-margining programs
were established. Cross-margining enhances the safety of the clearing
system while providing lower clearing margin costs to participants.
Therefore, expanding the positions that may be included in X-M Accounts
is beneficial to the clearing system and its participants. The proposed
rule change is not inconsistent with the other rules of OCC, including
any rules proposed to be amended.
(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)(iii) of the Act \7\ and Rule 19b-4(f)(4) \8\ promulgated
thereunder because the proposal effects a change in an existing service
of OCC that (A) does not adversely affect the safeguarding of
securities or funds in the custody or
[[Page 16407]]
control of OCC or for which it is responsible and (B) does not
significantly affect the respective rights or obligations of OCC or
persons using the service. At any time within sixty days of the filing
of the proposed rule change, the Commission could summarily abrogate
such rule change if it appears to the Commission that such action was
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78s(b)(3)(A)(iii).
\8\ 17 CFR 240.19b-4(f)(4).
---------------------------------------------------------------------------
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 Number SR-OCC-2008-03 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2008-03. 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 inspection and
copying 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 the principal office of OCC. 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-2008-03 and should be
submitted on or before April 17, 2008.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\9\
---------------------------------------------------------------------------
\9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-6252 Filed 3-26-08; 8:45 am]
BILLING CODE 8011-01-P