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]
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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
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Fmt 4703
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E:\FR\FM\23NON1.SGM
23NON1
Agencies
[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