Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change To Establish a Comprehensive Standard of Care and Limitation of Liability With Respect to Clearing Members, 70910-70911 [E5-6456]

Download as PDF 70910 Federal Register / Vol. 70, No. 225 / Wednesday, November 23, 2005 / Notices standard of care and limitation of liability with respect to its clearing members.3 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52752A; File No. SR– NASD–2004–044] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendments Nos. 1 and 2 Thereto Relating to Short Sale Delivery Requirements November 17, 2005. Correction In FR Document No. E5–6306, beginning on page 69614 for Wednesday, November 16, 2005, in the first sentence of the first paragraph of the Notice the date should read March 10, 2004. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.1 Jonathan G. Katz, Secretary. [FR Doc. E5–6457 Filed 11–22–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52783; File No. SR–OCC– 2003–13] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change To Establish a Comprehensive Standard of Care and Limitation of Liability With Respect to Clearing Members November 16, 2005. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 notice is hereby given that on November 5, 2003, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) and on August 18, 2004, amended 2 the proposed rule change as described in Items I, II, and III below, which items have been prepared by OCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested parties. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change OCC is seeking to establish gross negligence as its comprehensive 1 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 Letter from William H. Navin, Executive Vice President, General Counsel, and Secretary, OCC (August 17, 2005). 1 15 VerDate Aug<31>2005 17:33 Nov 22, 2005 Jkt 208001 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.4 (A) Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In 1980 in its release setting forth standards for registration of clearing agencies, the Division of Market Regulation stated that it was ‘‘of the view that clearing agencies should undertake to perform their obligations with a high degree of care.’’ 5 Later, in 1983 in its release registering nine clearing agencies, the Commission stated that it did ‘‘not believe sufficient justification exists at this time to require a unique federal standard of care for registered clearing agencies.’’6 The Commission has left to user-governed clearing agencies the question of how to allocate losses associated with, among other things, clearing agency functions. Along this line, in 1986 in its order approving a proposed rule change of the Midwest Securities Trust Company (‘‘MSTC’’) to clarify the rights and liabilities of the MSTC and its participants with respect to certain services, the Commission stated: The Act does not specify the standard of care that must be exercised by registered clearing agencies and the Commission has determined that imposition of a unique Federal standard of care for registered clearing agencies is not appropriate at this time. [citing Securities Exchange Act Release No. 20221, supra note 5] For those reasons the Commission believes that the clearing agency standard of care and the allocation of rights and responsibilities between a clearing 3 OCC’s proposed rule change would not affect the regulatory standards (e.g., section 17A of the Act) that apply to OCC or the way in which OCC conducts its clearing agency operations. 4 The Commission has modified the text of the summaries prepared by OCC. 5 Securities Exchange Act Release No. 16900 (June 17, 1980), 45 FR 45167 (June 23, 1980). 6 Securities Exchange Act Release No. 20221 (September 23, 1983), 48 FR 45167 (October 3, 1983). PO 00000 Frm 00129 Fmt 4703 Sfmt 4703 agency and its participants applicable to clearing agency services generally may be set by the clearing agency and its participants. The Commission believes it should review clearing agency proposed rule changes in this area on a case-by-case basis and balance the need for a high degree of clearing agency care with the effect resulting liabilities may have on clearing agency operations, costs, and safeguarding of securities and funds.7 Because standards of care represent an allocation of rights and liabilities between a clearing agency and its users, which are generally sophisticated financial entities, the Commission has continued to refrain from establishing a unique federal standard of care and has allowed clearing agencies and other selfregulatory organizations and their users to establish their own standards of care.8 With this proposed rule change, OCC is seeking to establish a comprehensive gross negligence standard of care and limitation of liability with respect to its clearing members and makes the following representations. OCC states in the filing that since its founding in 1973, it has performed its clearing services with an exemplary level of care. Its record of fulfilling its commitments to its clearing members for over 30 years reflects OCC’s commitment to serving the best interests of its clearing members. It has comprehensive systems and operating procedures in place to ensure that its clearing functions are executed with the highest level of accuracy. In addition to its own concern for accuracy, it is subject to extensive regulatory oversight by the Commission. Furthermore, in its amendment to the filing, OCC states that gross negligence is the standard of care generally used by other clearing agencies such as the Fixed Income Clearing Corporation, the decision to apply a gross negligence standard of care to OCC is a conscious allocation of risk between OCC and its members, the filing was unanimously approved by OCC’s directors, a majority of whom are officers of clearing members, and the proposed rule change in no way will affect the very high level of care to which OCC has always held itself and to which it is held through the regulatory oversight of the Commission.9 As such, OCC believes 7 Securities Exchange Act Release No. 22940 (February 24, 1986), 51 FR 7169 (February 28, 1986). 8 See, e.g., Securities Exchange Act Release Nos. 51669 (May 9, 2005), 70 FR 25634 (May 13, 2005) [File No. SR–NSCC–2004–09]; 48201 (July 21, 2003), 68 FR 44128 (July 25, 2003) [File No. SR– GSCC–2002–10]; 37563 (August 14, 1996), 61 FR 43285 (August 21, 1996) [SR–PSE–96–21]; and 37421 (July 11, 1996), 61 FR 37513 (July 18, 1996) [SR–CBOE–96–02]. 9 Supra, letter from William H. Navin, n. 2. E:\FR\FM\23NON1.SGM 23NON1 Federal Register / Vol. 70, No. 225 / Wednesday, November 23, 2005 / Notices that a gross negligence standard of care is appropriate for OCC.10 OCC believes that the proposed rule change is consistent with the requirements of section 17A of the Act 11 and the rules and regulations thereunder applicable to OCC because it will permit the resources of OCC to be appropriately utilized for promoting the prompt and accurate clearance and settlement of options transactions and for providing for the safeguarding of securities and funds in its custody or control or for which it is responsible. (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 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 10 Specifically, OCC is proposing to amend Article VI of its By-Laws, ‘‘Clearance of Exchange Transactions,’’ by adding new section 25, ‘‘Limitation of Liability,’’ which would state: (a) Notwithstanding any other provision in the By-Laws and Rules, the Corporation will not be liable for any action taken, or any delay or failure to take any action, under the By-Laws and Rules or otherwise, to fulfill the Corporation’s obligations to its Clearing Members, other than for losses caused directly by the Corporation’s gross negligence, willful misconduct, or violation of federal securities laws for which there is a private right of action. Under no circumstances will the Corporation be liable for the acts, delays, omissions, bankruptcy, or insolvency of any third party, including, without limitation, any bank or other depository, custodian, sub-custodian, clearing or settlement system, data communication service, or other third party, unless the Corporation was grossly negligent, engaged in willful misconduct, or was in violation of federal securities laws for which there is a private right of action, in selecting such third party; and (b) Under no circumstances will the Corporation be liable for any indirect, consequential, incidental, special, punitive or exemplary loss or damage (including, but not limited to, loss of business, loss of profits, trading losses, loss of opportunity and loss of use) however suffered or incurred, regardless of whether the Corporation has been advised of the possibility of such damages or whether such damages otherwise could have been foreseen or prevented. 11 15 U.S.C. 78q–1. VerDate Aug<31>2005 17:33 Nov 22, 2005 Jkt 208001 70911 (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve such proposed rule change or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. 2003–13 and should be submitted on or before December 14, 2005. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: BILLING CODE 8010–01–P For the Commission by the Division of Market Regulation, pursuant to delegated authority.12 Jonathan G. Katz, Secretary. [FR Doc. E5–6456 Filed 11–22–05; 8:45 am] SMALL BUSINESS ADMINISTRATION Wisconsin District Advisory Council; Public Meeting The U.S. Small Business Administration, Wisconsin District Advisory Council will be hosting a public meeting to discuss such matters that may be presented by members, and staff of the U.S. Small Business Administration, or others present. The meeting will be held on Tuesday, December 13, 2005 starting at 1:30 p.m. The meeting will be held at the U.S. Paper Comments Small Business Administration, Wisconsin-Milwaukee District Office, • Send paper comments in triplicate 310 West Wisconsin Avenue, Suite 400, to Jonathan G. Katz, Secretary, Milwaukee, Wisconsin. Securities and Exchange Commission, Anyone wishing to attend must 100 F Street, NE., Washington, DC contact Cindy Merrigan in writing or by 20549–9303. fax. Cindy Merrigan, Computer All submissions should refer to File Specialist, U.S. Small Business Number SR–OCC–2003–13. This file Administration, 740 Regent Street, Suite number should be included on the subject line if e-mail is used. To help the 100, Madison, Wisconsin 53715, phone (608) 441–5560, fax (202) 481–0815, eCommission process and review your mail: cindy.merrigan@sba.gov. comments more efficiently, please use only one method. The Commission will Matthew K. Becker, post all comments on the Commission’s Committee Management Officer. Internet Web site (https://www.sec.gov/ [FR Doc. 05–23125 Filed 11–22–05; 8:45 am] rules/sro.shtml). Copies of the BILLING CODE 8025–01–P submission, all subsequent amendments, all written statements with respect to the proposed rule OFFICE OF THE UNITED STATES change that are filed with the TRADE REPRESENTATIVE Commission, and all written communications relating to the Trade Policy Staff Committee; Notice proposed rule change between the of Availability and Request for Public Commission and any person, other than Comment on Interim Environmental those that may be withheld from the Review of United States-Thailand Free public in accordance with the Trade Agreement provisions of 5 U.S.C. 552, will be available for inspection and copying in AGENCY: Office of the United States the Commission’s Public Reference Trade Representative. Section, 100 F Street, NE., Washington, ACTION: Notice of availability and DC 20549. Copies of such filing also will request for public comment. be available for inspection and copying at the principal office of OCC and on SUMMARY: The Office of the U.S. Trade OCC’s Web site at https:// Representative (USTR), on behalf of the www.theocc.com. All comments Trade Policy Staff Committee (TPSC), received will be posted without change; seeks comment on the interim the Commission does not edit personal environmental review of the proposed identifying information from United States-Thailand Free Trade submissions. You should submit only Agreement (FTA). The interim information that you wish to make environmental review is available at available publicly. All submissions 12 17 CFR 200.30–3(a)(12). should refer to File Number SR–OCC– 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–2003–13 on the subject line. PO 00000 Frm 00130 Fmt 4703 Sfmt 4703 E:\FR\FM\23NON1.SGM 23NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 225 (Wednesday, November 23, 2005)]
[Notices]
[Pages 70910-70911]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-6456]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52783; File No. SR-OCC-2003-13]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Establish a Comprehensive 
Standard of Care and Limitation of Liability With Respect to Clearing 
Members

November 16, 2005.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 5, 2003, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') and on August 18, 2004, amended 
\2\ the proposed rule change as described in Items I, II, and III 
below, which items have been prepared by OCC. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested parties.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Letter from William H. Navin, Executive Vice President, 
General Counsel, and Secretary, OCC (August 17, 2005).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    OCC is seeking to establish gross negligence as its comprehensive 
standard of care and limitation of liability with respect to its 
clearing members.\3\
---------------------------------------------------------------------------

    \3\ OCC's proposed rule change would not affect the regulatory 
standards (e.g., section 17A of the Act) that apply to OCC or the 
way in which OCC conducts its clearing agency operations.
---------------------------------------------------------------------------

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.\4\
---------------------------------------------------------------------------

    \4\ The Commission has modified the text of the summaries 
prepared by OCC.
---------------------------------------------------------------------------

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In 1980 in its release setting forth standards for registration of 
clearing agencies, the Division of Market Regulation stated that it was 
``of the view that clearing agencies should undertake to perform their 
obligations with a high degree of care.'' \5\ Later, in 1983 in its 
release registering nine clearing agencies, the Commission stated that 
it did ``not believe sufficient justification exists at this time to 
require a unique federal standard of care for registered clearing 
agencies.''\6\ The Commission has left to user-governed clearing 
agencies the question of how to allocate losses associated with, among 
other things, clearing agency functions. Along this line, in 1986 in 
its order approving a proposed rule change of the Midwest Securities 
Trust Company (``MSTC'') to clarify the rights and liabilities of the 
MSTC and its participants with respect to certain services, the 
Commission stated:

    \5\ Securities Exchange Act Release No. 16900 (June 17, 1980), 
45 FR 45167 (June 23, 1980).
    \6\ Securities Exchange Act Release No. 20221 (September 23, 
1983), 48 FR 45167 (October 3, 1983).
---------------------------------------------------------------------------

    The Act does not specify the standard of care that must be 
exercised by registered clearing agencies and the Commission has 
determined that imposition of a unique Federal standard of care for 
registered clearing agencies is not appropriate at this time. 
[citing Securities Exchange Act Release No. 20221, supra note 5] For 
those reasons the Commission believes that the clearing agency 
standard of care and the allocation of rights and responsibilities 
between a clearing agency and its participants applicable to 
clearing agency services generally may be set by the clearing agency 
and its participants. The Commission believes it should review 
clearing agency proposed rule changes in this area on a case-by-case 
basis and balance the need for a high degree of clearing agency care 
with the effect resulting liabilities may have on clearing agency 
operations, costs, and safeguarding of securities and funds.\7\

    \7\ Securities Exchange Act Release No. 22940 (February 24, 
1986), 51 FR 7169 (February 28, 1986).
---------------------------------------------------------------------------

    Because standards of care represent an allocation of rights and 
liabilities between a clearing agency and its users, which are 
generally sophisticated financial entities, the Commission has 
continued to refrain from establishing a unique federal standard of 
care and has allowed clearing agencies and other self-regulatory 
organizations and their users to establish their own standards of 
care.\8\
---------------------------------------------------------------------------

    \8\ See, e.g., Securities Exchange Act Release Nos. 51669 (May 
9, 2005), 70 FR 25634 (May 13, 2005) [File No. SR-NSCC-2004-09]; 
48201 (July 21, 2003), 68 FR 44128 (July 25, 2003) [File No. SR-
GSCC-2002-10]; 37563 (August 14, 1996), 61 FR 43285 (August 21, 
1996) [SR-PSE-96-21]; and 37421 (July 11, 1996), 61 FR 37513 (July 
18, 1996) [SR-CBOE-96-02].
---------------------------------------------------------------------------

    With this proposed rule change, OCC is seeking to establish a 
comprehensive gross negligence standard of care and limitation of 
liability with respect to its clearing members and makes the following 
representations. OCC states in the filing that since its founding in 
1973, it has performed its clearing services with an exemplary level of 
care. Its record of fulfilling its commitments to its clearing members 
for over 30 years reflects OCC's commitment to serving the best 
interests of its clearing members. It has comprehensive systems and 
operating procedures in place to ensure that its clearing functions are 
executed with the highest level of accuracy. In addition to its own 
concern for accuracy, it is subject to extensive regulatory oversight 
by the Commission. Furthermore, in its amendment to the filing, OCC 
states that gross negligence is the standard of care generally used by 
other clearing agencies such as the Fixed Income Clearing Corporation, 
the decision to apply a gross negligence standard of care to OCC is a 
conscious allocation of risk between OCC and its members, the filing 
was unanimously approved by OCC's directors, a majority of whom are 
officers of clearing members, and the proposed rule change in no way 
will affect the very high level of care to which OCC has always held 
itself and to which it is held through the regulatory oversight of the 
Commission.\9\ As such, OCC believes

[[Page 70911]]

that a gross negligence standard of care is appropriate for OCC.\10\
---------------------------------------------------------------------------

    \9\ Supra, letter from William H. Navin, n. 2.
    \10\ Specifically, OCC is proposing to amend Article VI of its 
By-Laws, ``Clearance of Exchange Transactions,'' by adding new 
section 25, ``Limitation of Liability,'' which would state:
    (a) Notwithstanding any other provision in the By-Laws and 
Rules, the Corporation will not be liable for any action taken, or 
any delay or failure to take any action, under the By-Laws and Rules 
or otherwise, to fulfill the Corporation's obligations to its 
Clearing Members, other than for losses caused directly by the 
Corporation's gross negligence, willful misconduct, or violation of 
federal securities laws for which there is a private right of 
action. Under no circumstances will the Corporation be liable for 
the acts, delays, omissions, bankruptcy, or insolvency of any third 
party, including, without limitation, any bank or other depository, 
custodian, sub-custodian, clearing or settlement system, data 
communication service, or other third party, unless the Corporation 
was grossly negligent, engaged in willful misconduct, or was in 
violation of federal securities laws for which there is a private 
right of action, in selecting such third party; and
    (b) Under no circumstances will the Corporation be liable for 
any indirect, consequential, incidental, special, punitive or 
exemplary loss or damage (including, but not limited to, loss of 
business, loss of profits, trading losses, loss of opportunity and 
loss of use) however suffered or incurred, regardless of whether the 
Corporation has been advised of the possibility of such damages or 
whether such damages otherwise could have been foreseen or 
prevented.
---------------------------------------------------------------------------

    OCC believes that the proposed rule change is consistent with the 
requirements of section 17A of the Act \11\ and the rules and 
regulations thereunder applicable to OCC because it will permit the 
resources of OCC to be appropriately utilized for promoting the prompt 
and accurate clearance and settlement of options transactions and for 
providing for the safeguarding of securities and funds in its custody 
or control or for which it is responsible.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

(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

    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 such 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, as amended, 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-2003-13 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-OCC-2003-13. 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 inspection 
and copying in the Commission's Public Reference Section, 100 F Street, 
NE., Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of OCC and on OCC's 
Web site at https://www.theocc.com. 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-2003-13 and should be submitted on or before 
December 14, 2005.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\12\
Jonathan G. Katz,
Secretary.
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

 [FR Doc. E5-6456 Filed 11-22-05; 8:45 am]
BILLING CODE 8010-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.