[Federal Register: September 9, 1999 (Volume 64, Number 174)] [Notices] [Page 49039-49040] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr09se99-87] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-41810; File No. SR-OCC-99-01] Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving a Proposed Rule Change Relating to the Acceptance of Letters of Credit for Margin Purposes August 30, 1999. On January 22, 1999, The Options Clearing Corporation (``OCC'') filed with the Securities and Exchange Commission (``Commission'') a proposed rule change (File No. SR-OCC-99-01) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ to permit OCC to replace its current letter of credit form with a letter of credit form developed by the Uniform Clearing Group (``UCG'').\2\ Notice of the proposal was published in the Federal Register on June 14, 1999.\3\ On August 2, 1999, OCC amended the proposed rule change.\4\ 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\ The UCG is an organization composed of all major securities and futures clearing organizations and depositories in the United States. The members of the UCG include the Boston Stock Exchange Clearing Corporation, The Depository Trust Company, Government Securities Clearing Corporation, MBS Clearing Corporation, National Securities Clearing Corporation, OCC, Board of Trade Clearing Corporation, Chicago Mercantile Exchange, Clearing Corporation of New York, Kansas City Board of Trade, Minneapolis Grain Exchange, New York Mercantile Exchange, Emerging Markets Clearing Corporation, and Clearing Corporation for Options and Securities. \3\ Securities Exchange Act Release No. 41486 (June 7, 1999), 64 FR 31889. \4\ The amendment filed by OCC was a technical amendment to the proposed rule change and as such did not require republication of the notice. --------------------------------------------------------------------------- I. Description The rule change will amend OCC's Rule 604(c) to incorporate the use of the Uniform Letter of Credit (``ULC'') created by UCG. First, the rule change will require the issuing bank to make payment against the ULC within sixty minutes of presentment of a demand for payment. Second, the rule change will add a new paragraph to Rule 604(c) that gives OCC flexibility in specifying acceptable expiration dates for the ULC. Third, the rule change will delete the provisions of OCC's rules that permit a clearing member to issue instructions to OCC that restrict a previously unrestricted letter of credit or a portion thereof to serve as margin only for the clearing member's customers' accounts. Finally, the rule change will delete the last sentence of Rule 604(c)(4), which allows members to deposit letters of credit denominated in any foreign currency that is a trading currency. II. Discussion Section 17A(b)(3)(F) \5\ of the Act requires that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions, 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, and to foster cooperation and coordination with persons engaged in the clearance and settlement of securities transactions. As set forth below, the Commission finds that the rule change is consistent with OCC's obligations under the Act. --------------------------------------------------------------------------- \5\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- By shortening the time period from the third banking day to 60 minutes, the proposed rule change should reduce the likelihood that OCC will be unable to fulfill its settlement obligations while it waits for a issuing bank to honor its demand on a letter of credit. Currently, OCC requires that a letter of credit expire no later than the first day of the next calendar quarter. By allowing letters of credits to be issued with expiration dates more than one calendar quarter in the future, OCC may be able to simplify its record-keeping, and its members may be able to reduce their costs associated with obtaining letters of credit. According to OCC, clearing members generally do not use the provisions that permit a clearing member to restrict a previously unrestricted letter of credit. Furthermore, placing the restriction on the face of the letter of credit may [[Page 49040]] provide better notice of the restriction and should reduce the likelihood of confusion over which letters are intended to be restricted and which letters are not. Finally, by expressly stating that letters of credit may be denominated in any foreign trading currency is unnecessary in light of other provisions in OCC's rules that specify that letters of credit may be denominated in any currency. The Commission also finds that the rule change is consistent with OCC's obligations under the Act to foster cooperation and coordination with persons engaged in the clearance and settlement of securities transactions. The ULC was developed by OCC and the other members of the UCG to foster uniformity among the various U.S. securities and futures clearing organizations with respect to letters of credit that are deposited as collateral. This uniformity will help reduce operational burdens for securities and futures industry participants and their letter of credit issuers. It should also enhance the legal certainty that the letters of credit received by OCC and other UCG members as collateral will be enforceable. 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 Section 17A of the Act and the rules and regulations thereunder. It Is Therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-OCC-99-01) be and hereby is approved. For the Commission by the Division of Market Regulation, pursuant to delegated authority.\6\ --------------------------------------------------------------------------- \6\ 17 CFR 200.30-(a)(12). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 99-23390 Filed 9-8-99; 8:45 am] BILLING CODE 8010-01-M