Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change To Revise Its By-Laws and Rules To Establish a Clearing Fund Amount Intended To Support Losses Under a Defined Set of Default Scenarios, 37864-37866 [2010-15892]
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37864
Federal Register / Vol. 75, No. 125 / Wednesday, June 30, 2010 / Notices
Exchange’s corresponding proposal to
amend the BOX rule to permit EPs to
choose the firms from whom they will
accept Directed Orders. Accordingly,
the Exchange believes that the proposal
is consistent with the requirements of
Section 6(b) of the Act,21 in general, and
Section 6(b)(5) of the Act,22 in
particular, in that it is designed to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, to remove impediments to
and perfect the mechanism for a free
and open market and a national market
system and, in general, to protect
investors and the public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has neither solicited
nor received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change: (1) Does not significantly affect
the protection of investors or the public
interest; (2) does not impose any
significant burden on competition; and
(3) by its terms does not become
operative for 30 days after the date of
this filing, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest, the proposed rule
change has become effective pursuant to
Section 19(b)(3)(A) 23 of the Act and
Rule 19b–4(f)(6) thereunder.24
A proposed rule change filed under
Rule 19b–4(f)(6) 25 normally may not
become operative prior to 30 days after
the date of filing. However, Rule 19b–
21 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
23 15 U.S.C. 78s(b)(3)(A).
24 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
provide the Commission with written notice of its
intent to file the proposed rule change, along with
a brief description and text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission. The
Commission deems this requirement to have been
met.
25 17 CFR 240.19b–4(f)(6).
mstockstill on DSKH9S0YB1PROD with NOTICES
22 15
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4(f)(6)(iii) 26 permits the Commission to
designate a shorter time if such action
is consistent with the protection of
investors and the public interest. The
Exchange requests that the Commission
waive the 30-day operative delay, as
specified in Rule 19b–4(f)(6)(iii),27
which would make the rule change
effective and operative upon filing. The
Commission believes that waiving the
30-day operative delay is consistent
with the protection of investors and the
public interest because such waiver
would continue to conform the BOX
rules to BOX’s current practice without
interruption and clarify that Directed
Orders on BOX are not anonymous.28
Accordingly, the Commission
designates the proposed rule change
operative upon filing with the
Commission.
At any time within 60 days of the
filing of such proposed rule change, the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–BX–2010–041 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–BX–2010–041. 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
26 17
CFR 240.19b–4(f)(6)(iii).
27 Id.
28 For purposes only of waiving the operative
delay for this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
PO 00000
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Sfmt 4703
post all comments on the Commission’s
Internet Web site (https://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 the Exchange. 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–BX–2010–041 and should
be submitted on or before July 21, 2010.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–15823 Filed 6–29–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62371; File No. SR–OCC–
2010–04]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing of Proposed Rule Change To
Revise Its By-Laws and Rules To
Establish a Clearing Fund Amount
Intended To Support Losses Under a
Defined Set of Default Scenarios
June 24, 2009.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder 2
notice is hereby given that on March 16,
2010, The Options Clearing Corporation
(‘‘OCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’) a
proposed rule change and on June 6,
2010, filed an amendment to the
proposed rule change. The proposed
rule change, as amended, is described in
29 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 75, No. 125 / Wednesday, June 30, 2010 / Notices
Items I, II, and III below, which Items
have been substantially prepared by
OCC. The Commission is publishing
this notice to solicit comments on the
proposed rule change, as amended, from
interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The purpose of this proposed rule
change is to revise OCC’s By-Laws and
Rules to establish a clearing fund
amount intended to support losses
under a defined set of default scenarios.
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 these statements.
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
mstockstill on DSKH9S0YB1PROD with NOTICES
1. Purpose
This proposed rule change would
revise OCC’s By-Laws and Rules to
establish a clearing fund amount
required to support losses under a
defined set of default scenarios.
Currently, the amount of clearing fund
is calculated monthly and is based on a
fixed percentage of the average total
daily margin requirements during the
previous month.3
Under the proposed formula for
determining the size of the clearing
fund, the level of the fund would be
equal to the larger of the amount of the
charge to the fund that would result
from (i) a default by the single ‘‘clearing
member group’’ the default of which
would be likely to result in the largest
draw against the clearing fund or (ii) an
event involving the near-simultaneous
default of two randomly-selected
‘‘clearing member groups’’.4 Initially, the
3 Under the current formula, if 6% does not result
in a clearing fund amount of at least one billion
dollars, then OCC collects a higher percentage of
the previous month’s average daily margin
requirement that will result in a fund level of at
least one billion dollars. However, in no event is the
percentage permitted to exceed 7%.
4 The term ‘‘clearing member group’’ would be
defined to mean a clearing member and any
member affiliates of such clearing member
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16:53 Jun 29, 2010
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confidence levels employed by OCC in
calculating the charge likely to result
from a default by OCC’s largest ‘‘clearing
member group’’ and the default of two
randomly-selected ‘‘clearing member
groups’’ would be 99% and 99.9%
respectively. OCC would have
discretion to employ different
confidence levels in these calculations
but could not employ confidence levels
of less than 99%.5 The size of the
clearing fund would continue to be
recalculated monthly based on average
daily calculations for the previous
month. In no event would the size of the
total clearing fund be permitted to be
less than one billion dollars.6
In considering whether to revise the
clearing fund sizing formula, OCC
compared the size of the clearing fund
that would have resulted from
application of the revised formula to the
actual size of the clearing fund for each
month from February 2008 through
September 2009.7 This analysis revealed
that the size of the clearing fund under
the revised formula would have been on
average 10% larger than under the
current formula. In September and
October 2008, two months of extreme
volatility in the U.S. securities markets,
the revised formula would have resulted
in a clearing fund size approximately
31% and 27% greater than under the
current formula. The average monthly
change in the size of the clearing fund
and the standard deviation of clearing
fund size from month-to-month under
the two formulas were broadly similar.8
OCC believes the proposed new
formula for calculating clearing fund is
a better predictor of losses that would be
likely to result from the default
scenarios described above and would
establish an adequate clearing fund to
cover losses without OCC having to
(proposed new definition in Article I of OCC’s ByLaws.).
5 Proposed Interpretations & Policies .02 to Rule
1001.
6 Proposed Interpretations & Policies .01 to Rule
1001.
7 The data used for this analysis was obtained
prior to implementation of the changes approved in
SR–OCC–2007–20. Accordingly, the data does not
account for the effects those changes had on OCC’s
clearing fund size calculation. SR–OCC–2007–20
allowed certain securities to be analyzed as a single
portfolio under OCC’s risk management
methodology, the System for Theoretical Analysis
and Numerical Simulations (‘‘STANS’’), and
consequently allowed OCC to more accurately
measure risk in Clearing Members accounts and
more precisely set margin requirements to reflect
such risk.
8 The comparative data described in this
paragraph was obtained using confidence levels of
99% and above. OCC estimates that using only a
99% confidence level would have lowered the total
size of the clearing fund calculated using the
proposed methodology by an average of
approximately one half of a percent.
PO 00000
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Fmt 4703
Sfmt 4703
37865
require clearing members to replenish
the clearing fund. The existing formula
for determining the amount of clearing
fund is intended to establish an amount
reasonably designed to cover losses
resulting from one or more clearing
member defaults. OCC believes the
formula adequately serves that purpose.
Nevertheless, OCC believes the
proposed formula is a better predictor of
the actual losses likely to result from
such defaults. This is because the
existing formula only indirectly
accounts for potential losses by setting
the amount of the clearing fund as a
percentage of the previous month’s
average daily margin requirements. In
contrast, the proposed formula would
directly account for various types of
default scenarios. Therefore, in OCC’s
view, the proposed formula would be
more likely to result in adequate
clearing fund levels if such scenarios
occur and would more closely align the
size of the clearing fund with its
intended purpose of absorbing losses
from clearing member defaults and
avoid disruption of the clearance
process even during extreme market
conditions. Article VIII, Section 6 of
OCC’s By-Laws, which obligates
clearing members to satisfy deficiencies
in their clearing fund deposits resulting
from pro-rata charges or otherwise,9
would remain unchanged.
The specific amendments proposed to
OCC’s By-Laws and Rules to facilitate
the proposed changes to its clearing
fund calculation, can be found at
https://www.optionsclearing.com/about/
publications/bylaws.jsp. If approved by
the Commission, OCC would implement
the revised formula for determining the
size of its clearing fund after sixty days
notice to clearing members.
2. Statutory Basis
OCC believes the proposed rule
changes are consistent with the
requirements of Section 17A of the
Act 10 and the rules and regulations
thereunder because the proposed rule
changes would facilitate prompt and
accurate clearance and settlement of
securities transactions by creating a
more direct correlation between the
clearing fund size and estimated losses
from a defined set of default scenarios.
(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.
9 This is subject to a cap equal to 100% of a
clearing member’s then-required deposit if it
promptly withdraws from membership and closes
out or transfers its open positions.
10 15 U.S.C. 78q–1.
E:\FR\FM\30JNN1.SGM
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37866
Federal Register / Vol. 75, No. 125 / Wednesday, June 30, 2010 / Notices
(C) Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
Written comments relating to the
proposed rule change have not 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
Within thirty-five days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
ninety days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve the proposed
rule change or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
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 (https://www.sec.gov/
rules/sro.shtml) or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–OCC–2010–04 on the
subject line.
mstockstill on DSKH9S0YB1PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Secretary, Elizabeth M. Murphy,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–OCC–2010–04. 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 (https://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
VerDate Mar<15>2010
16:53 Jun 29, 2010
Jkt 220001
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 Web site viewing and
printing in the Commission’s Public
Reference Section, 100 F Street, NE.,
Washington, DC 20549–1090, on official
business days between the hours of 10
am and 3 pm. Copies of such filings will
also be available for inspection and
copying at the principal office of the
OCC and on OCC’s Web site at https://
www.optionsclearing.com/about/
publications/bylaws.jsp. 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–
2010–04 and should be submitted on or
before July 21, 2010.
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.11
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–15892 Filed 6–29–10; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62368; File No. SR–
NYSEARCA–2010–60]
Self-Regulatory Organizations; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change by NYSE
Arca, Inc. Amending NYSE Arca
Equities Rule 7.11 To Set Forth How
the Exchange Will Handle Order Flow
During a Regulatory Halt for a Security
Listed on an Exchange Other Than
NYSE Arca
June 23, 2010.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on June 22,
2010, NYSE Arca, Inc. (the ‘‘Exchange’’
or ‘‘NYSE Arca’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
11 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
PO 00000
Frm 00118
Fmt 4703
Sfmt 4703
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
NYSE Arca Equities Rule 7.11 to set
forth how the Exchange will handle
order flow during a regulatory halt for
a security listed on an exchange other
than NYSE Arca. The text of the
proposed rule change is available at the
Exchange, the Commission’s Public
Reference Room, and https://
www.nyse.com.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization 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 those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
NYSE Arca Equities Rule 7.11 to revise
how the Exchange will handle order
flow during a regulatory halt for a
security listed on an exchange other
than NYSE Arca.
Rule 7.11 was approved by the
Commission on June 10, 2010.4 The
Exchange filed to amend Rule 7.11 to
add subsection (f) to the Rule, which
addresses how orders will be handled
when another primary listing market
issues a trading pause or a regulatory
halt.5 Pursuant to Rule 7.11(f), upon the
receipt of a trading pause or regulatory
halt message from another primary
listing market, the Exchange will take
the following actions: (i) Maintain all
resting orders in the Book; (ii) cancel
any unexecuted portion of Market
Orders and Pegged Orders; (iii) accept
and process all cancellations; (iv) accept
and route new Market Orders to the
4 See Securities Exchange Act Release No. 62252
(June 10, 2010), 75 FR 34186 (June 16, 2010) (SR–
NYSEArca–2010–41).
5 See Securities Exchange Act Release No. 62281
(June 11, 2010), 75 FR 34504 (June 17, 2010) (SR–
NYSEArca–2010–52).
E:\FR\FM\30JNN1.SGM
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]]>Agencies
[Federal Register Volume 75, Number 125 (Wednesday, June 30, 2010)]
[Notices]
[Pages 37864-37866]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-15892]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62371; File No. SR-OCC-2010-04]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change To Revise Its By-Laws and
Rules To Establish a Clearing Fund Amount Intended To Support Losses
Under a Defined Set of Default Scenarios
June 24, 2009.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder \2\ notice is hereby given that
on March 16, 2010, The Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') a proposed
rule change and on June 6, 2010, filed an amendment to the proposed
rule change. The proposed rule change, as amended, is described in
[[Page 37865]]
Items I, II, and III below, which Items have been substantially
prepared by OCC. The Commission is publishing this notice to solicit
comments on the proposed rule change, as amended, from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The purpose of this proposed rule change is to revise OCC's By-Laws
and Rules to establish a clearing fund amount intended to support
losses under a defined set of default scenarios.
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 these
statements.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
This proposed rule change would revise OCC's By-Laws and Rules to
establish a clearing fund amount required to support losses under a
defined set of default scenarios. Currently, the amount of clearing
fund is calculated monthly and is based on a fixed percentage of the
average total daily margin requirements during the previous month.\3\
---------------------------------------------------------------------------
\3\ Under the current formula, if 6% does not result in a
clearing fund amount of at least one billion dollars, then OCC
collects a higher percentage of the previous month's average daily
margin requirement that will result in a fund level of at least one
billion dollars. However, in no event is the percentage permitted to
exceed 7%.
---------------------------------------------------------------------------
Under the proposed formula for determining the size of the clearing
fund, the level of the fund would be equal to the larger of the amount
of the charge to the fund that would result from (i) a default by the
single ``clearing member group'' the default of which would be likely
to result in the largest draw against the clearing fund or (ii) an
event involving the near-simultaneous default of two randomly-selected
``clearing member groups''.\4\ Initially, the confidence levels
employed by OCC in calculating the charge likely to result from a
default by OCC's largest ``clearing member group'' and the default of
two randomly-selected ``clearing member groups'' would be 99% and 99.9%
respectively. OCC would have discretion to employ different confidence
levels in these calculations but could not employ confidence levels of
less than 99%.\5\ The size of the clearing fund would continue to be
recalculated monthly based on average daily calculations for the
previous month. In no event would the size of the total clearing fund
be permitted to be less than one billion dollars.\6\
---------------------------------------------------------------------------
\4\ The term ``clearing member group'' would be defined to mean
a clearing member and any member affiliates of such clearing member
(proposed new definition in Article I of OCC's By-Laws.).
\5\ Proposed Interpretations & Policies .02 to Rule 1001.
\6\ Proposed Interpretations & Policies .01 to Rule 1001.
---------------------------------------------------------------------------
In considering whether to revise the clearing fund sizing formula,
OCC compared the size of the clearing fund that would have resulted
from application of the revised formula to the actual size of the
clearing fund for each month from February 2008 through September
2009.\7\ This analysis revealed that the size of the clearing fund
under the revised formula would have been on average 10% larger than
under the current formula. In September and October 2008, two months of
extreme volatility in the U.S. securities markets, the revised formula
would have resulted in a clearing fund size approximately 31% and 27%
greater than under the current formula. The average monthly change in
the size of the clearing fund and the standard deviation of clearing
fund size from month-to-month under the two formulas were broadly
similar.\8\
---------------------------------------------------------------------------
\7\ The data used for this analysis was obtained prior to
implementation of the changes approved in SR-OCC-2007-20.
Accordingly, the data does not account for the effects those changes
had on OCC's clearing fund size calculation. SR-OCC-2007-20 allowed
certain securities to be analyzed as a single portfolio under OCC's
risk management methodology, the System for Theoretical Analysis and
Numerical Simulations (``STANS''), and consequently allowed OCC to
more accurately measure risk in Clearing Members accounts and more
precisely set margin requirements to reflect such risk.
\8\ The comparative data described in this paragraph was
obtained using confidence levels of 99% and above. OCC estimates
that using only a 99% confidence level would have lowered the total
size of the clearing fund calculated using the proposed methodology
by an average of approximately one half of a percent.
---------------------------------------------------------------------------
OCC believes the proposed new formula for calculating clearing fund
is a better predictor of losses that would be likely to result from the
default scenarios described above and would establish an adequate
clearing fund to cover losses without OCC having to require clearing
members to replenish the clearing fund. The existing formula for
determining the amount of clearing fund is intended to establish an
amount reasonably designed to cover losses resulting from one or more
clearing member defaults. OCC believes the formula adequately serves
that purpose. Nevertheless, OCC believes the proposed formula is a
better predictor of the actual losses likely to result from such
defaults. This is because the existing formula only indirectly accounts
for potential losses by setting the amount of the clearing fund as a
percentage of the previous month's average daily margin requirements.
In contrast, the proposed formula would directly account for various
types of default scenarios. Therefore, in OCC's view, the proposed
formula would be more likely to result in adequate clearing fund levels
if such scenarios occur and would more closely align the size of the
clearing fund with its intended purpose of absorbing losses from
clearing member defaults and avoid disruption of the clearance process
even during extreme market conditions. Article VIII, Section 6 of OCC's
By-Laws, which obligates clearing members to satisfy deficiencies in
their clearing fund deposits resulting from pro-rata charges or
otherwise,\9\ would remain unchanged.
---------------------------------------------------------------------------
\9\ This is subject to a cap equal to 100% of a clearing
member's then-required deposit if it promptly withdraws from
membership and closes out or transfers its open positions.
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The specific amendments proposed to OCC's By-Laws and Rules to
facilitate the proposed changes to its clearing fund calculation, can
be found at https://www.optionsclearing.com/about/publications/bylaws.jsp. If approved by the Commission, OCC would implement the
revised formula for determining the size of its clearing fund after
sixty days notice to clearing members.
2. Statutory Basis
OCC believes the proposed rule changes are consistent with the
requirements of Section 17A of the Act \10\ and the rules and
regulations thereunder because the proposed rule changes would
facilitate prompt and accurate clearance and settlement of securities
transactions by creating a more direct correlation between the clearing
fund size and estimated losses from a defined set of default scenarios.
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\10\ 15 U.S.C. 78q-1.
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(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.
[[Page 37866]]
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
Written comments relating to the proposed rule change have not 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
Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period (i) as the
Commission may designate up to ninety days of such date if it finds
such longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which the self-regulatory organization consents,
the Commission will:
(A) By order approve the proposed rule change or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
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 (https://www.sec.gov/rules/sro.shtml) or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-OCC-2010-04 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Elizabeth
M. Murphy, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2010-04. 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 (https://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 Web site viewing and
printing in the Commission's Public Reference Section, 100 F Street,
NE., Washington, DC 20549-1090, on official business days between the
hours of 10 am and 3 pm. Copies of such filings will also be available
for inspection and copying at the principal office of the OCC and on
OCC's Web site at https://www.optionsclearing.com/about/publications/bylaws.jsp. 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-
2010-04 and should be submitted on or before July 21, 2010.
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\11\ 17 CFR 200.30-3(a)(12).
For the Commission by the Division of Trading and Markets,
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pursuant to delegated authority.\11\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-15892 Filed 6-29-10; 8:45 am]
BILLING CODE 8010-01-P
