[Federal Register: June 4, 1999 (Volume 64, Number 107)] [Notices] [Page 30092] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr04jn99-120] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-41456; File No. SR-OCC-99-05] Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving a Proposed Rule Change Regarding Joint Back Office Participants May 26, 1999. On March 3, 1999, The Options Clearing Corporation (``OCC'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change (File No. SR-OCC-99-05) pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal was published in the Federal Register on April 23, 1999.\2\ No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ Securities Exchange Act Release No. 41298 (April 16, 1999), 64 FR 20043. --------------------------------------------------------------------------- I. Description The rule change amends OCC's rules and by-laws to allow clearing members to maintain joint back office accounts (``JBO accounts'') for the broker-dealers with whom the clearing members have joint back office arrangements (``JBO participants'') in which long positions can be used to offset short positions in options. Under the rule change, a broker-dealer registered with the Commission is considered a JBO participant if it: (1) Maintains a joint back office arrangement that satisfies the requirements of Regulation T \3\ with an OCC clearing member, (2) meets the applicable requirements as specified in the applicable exchange rules, and (3) consents to having its exchange transactions cleared and its positions carried in a JBO participant account. --------------------------------------------------------------------------- \3\ Joint back office arrangements are authorized under Section 220.7 of Regulation T of the Board of Governors of the Federal Reserve System and permit non-clearing broker-dealers to be deemed self-clearing for credit extension purposes if the non-clearing broker-dealer has an ownership interest in the clearing firm. --------------------------------------------------------------------------- OCC will treat JBO participants like market makers and specialists and will treat JBO participants' accounts like market maker's accounts and specialist's accounts. For example, long positions in a JBO participant' account will be treated as unsegregated long positions. The exception to this treatment relates to Chapter IV of OCC's Rules, which pertains to the submission of matched trade reports from exchanges to OCC. OCC does not anticipate that its participant exchanges will report JBO transactions as market maker or specialist transactions for purposes of reporting matched trades. Accordingly, JBO participants will be not be included within the term ``market maker'' or ``specialist'' for the purposes of the rules in Chapter IV. In addition, the rule change amends Article I, section 1 of OCC's By-laws to add definitions for ``JBO participant'' and ``JBO participants' account'' and amends the definition of ``unsegregated long position'' to include long positions in JBO participants' accounts. The rule change also amends Interpretation .03 to Article V, section 1 of the By-laws, which provides that applicants for clearing membership must agree to seek approval from the membership/margin committee to clear types of transactions for which approval was not initially sought in the membership application, by adding JBO participant transactions to the list of transactions. Finally, the rule change amends Article VI, section 3 of the By-laws to add a JBO participants' account to the list of permissible accounts clearing members may maintain with OCC. II. Discussion Section 17A(b)(3)(F) of the Act \4\ requires that the rules of a clearing agency be designed to assure the safeguarding of securities and funds which are in its custody or control or for which it is responsible. The Commission believes that the rule change is consistent with OCC's obligations under section 17A(b)(3)(F) because while it should result in OCC collecting less margin for positions which will be carried in JBO accounts, it has been designed to not impair OCC's protection against member default. --------------------------------------------------------------------------- \4\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- III. 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 section 17A of the Act \5\ and the rules and regulations thereunder. --------------------------------------------------------------------------- \5\15 U.S.C. 78q-1. --------------------------------------------------------------------------- It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-OCC-99-05) be and hereby is approved. For the Commission by the Division of Market Regulation, pursuant to delegated authority.\6\ --------------------------------------------------------------------------- \6\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 99-14115 Filed 6-3-99; 8:45 am] BILLING CODE 8010-01-M