[Federal Register: December 13, 2006 (Volume 71, Number 239)]
[Notices]
[Page 74974-74975]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13de06-83]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54880; File No. SR-OCC-2006-12]
Self-Regulatory Organizations; The Options Clearing Corporation;
Order Approving a Proposed Rule Change Relating to an Escrow Program
Fee To Be Charged to Escrow Banks
December 6, 2006.
On July 12, 2006, The Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission the proposed rule change
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 October 13, 2006.\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. 54572 (Oct. 4, 2006), 71
FR 50599.
---------------------------------------------------------------------------
I. Description
The proposed rule change will amend OCC's Schedule of Fees by
adding a $200 escrow fee to be charged to OCC-approved banks.
As background, OCC's escrow deposit program allows a custodian bank
that has entered into an escrow agreement with OCC (``escrow bank'') to
make deposits of eligible collateral on behalf of its customers with
respect to stock option contracts and index option contracts carried in
short positions and to rollover and withdraw such deposits by
submitting electronic instructions to OCC through OCC's escrow deposit
system.\3\ Escrow deposits are pledged to the customer's clearing
member in order to satisfy the customer's obligation to deposit
customer level margin at the clearing member and are pledged to OCC in
order to satisfy the clearing member's obligation to deposit clearing
level margin at OCC with respect to a specified short position in stock
or index options.\4\ Under OCC's form of escrow agreement, an escrow
bank is obligated to hold the deposited collateral subject to the lien
of OCC and the clearing member until such liens are released.
---------------------------------------------------------------------------
\3\ Escrow banks also use the escrow deposit system to receive
and review OCC and relevant clearing member responses and to access
reports.
\4\ Escrow deposits may include: (i) The underlying securities
for any stock option contract; (ii) cash, short-term U.S. Government
securities, and/or common stocks for any index call option contract;
and (iii) cash and/or short-term U.S Government securities for stock
or index put options.
---------------------------------------------------------------------------
In 2005, the escrow deposit system was integrated into OCC's
clearing
[[Page 74975]]
system, which enabled escrow banks to access the escrow system through
the Internet. Before the integration, escrow banks were required to
lease or buy a personal computer that was configured by OCC to provide
secure access to the escrow deposit system. Banks that elected the
lease alternative are currently charged a $200 monthly fee of which
$150 is an equipment leasing fee and $50 is an access fee.\5\ Banks
that (i) Elected the purchase alternative or (ii) became escrow banks
after the systems integration are currently charged only the $50 access
fee, which is intended to cover the costs associated with administering
the escrow deposit program. Costs to administer the program include:
(1) Legal costs related to addressing the contractual aspects of the
program; (2) audit costs related to ensuring compliance with the
external audit reporting requirements of the program; and (3) staff
costs related to servicing program users (i.e., escrow banks and
clearing members).
---------------------------------------------------------------------------
\5\ OCC has continued to charge current escrow banks with leased
equipment the $200 per month total fee as they have retained such
equipment as a back-up to Internet access to the escrow system.
However, a different back-up solution is being implemented for all
escrow banks, which is rendering the leased equipment obsolete for
purposes of accessing the escrow system.
---------------------------------------------------------------------------
In connection with reviewing different back-up solutions to
internet access, OCC also examined its costs to administer the escrow
program and concluded that the costs greatly exceed the $50 per month
access fee. Accordingly, OCC has determined to charge all escrow banks
a $200 per month escrow program fee, which will be reflected in OCC's
Schedule of Fees. The escrow program fee will allow OCC to partially
offset its escrow program administration costs but will not affect the
overwhelming majority of escrow banks because the majority of escrow
banks already pay $200 per month in aggregate escrow deposit program
fees.
II. Discussion
Section 17A(b)(3)(D) of the Act \6\ requires the rules of a
registered clearing agency to provide for the equitable allocation of
reasonable dues, fees, and other charges among its participants. The
Commission finds that OCC's proposed amendment to its Schedule of Fees
is consistent with this requirement because the $200 per month program
fee reflects OCC's cost to administer the escrow program with respect
to escrow banks accessing the program.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78q-1(b)(3)(D).
---------------------------------------------------------------------------
III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act \7\ and the
rules and regulations thereunder.
---------------------------------------------------------------------------
\7\ 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-2006-12) be, and hereby
is, approved.\8\
---------------------------------------------------------------------------
\8\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition and
capital formation. 15 U.S.C. 78c(f).
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\9\
---------------------------------------------------------------------------
\9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E6-21163 Filed 12-12-06; 8:45 am]
BILLING CODE 8011-01-P