Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change To Establish a Comprehensive Standard of Care and Limitation of Liability With Respect to Clearing Members, 2283-2284 [E6-252]
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Federal Register / Vol. 71, No. 9 / Friday, January 13, 2006 / Notices
Comments may be submitted by any of
the following methods:
SECURITIES AND EXCHANGE
COMMISSION
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–NYSE–2005–91 on the
subject line.
[Release No. 34–53053; File No. SR–OCC–
2003–13]
Self-Regulatory Organizations; The
Options Clearing Corporation; Order
Approving Proposed Rule Change To
Establish a Comprehensive Standard
of Care and Limitation of Liability With
Respect to Clearing Members
January 5, 2006.
Paper Comments
I. Introduction
On November 5, 2003, The Options
Clearing Corporation (‘‘OCC’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) and on
August 18, 2004, amended 1 proposed
rule change SR–OCC–2003–13 pursuant
All submissions should refer to File
to Section 19(b)(1) of the Securities
Number SR–NYSE–2005–91. This file
Exchange Act of 1934 (‘‘Act’’).2 Notice
number should be included on the
of the proposal was published in the
subject line if e-mail is used. To help the
Federal Register on November 23,
Commission process and review your
2005.3 No comment letters were
comments more efficiently, please use
received. For the reasons discussed
only one method. The Commission will below, the Commission is approving the
post all comments on the Commission’s proposed rule change.
Internet Web site (https://www.sec.gov/
II. Description
rules/sro.shtml). Copies of the
In its 1980 release setting forth
submission, all subsequent
standards for registration of clearing
amendments, all written statements
agencies, the Commission’s Division of
with respect to the proposed rule
Market Regulation stated that it was ‘‘of
change that are filed with the
the view that clearing agencies should
Commission, and all written
undertake to perform their obligations
communications relating to the
with a high degree of care.’’ 4 In its 1983
proposed rule change between the
order registering nine clearing agencies,
Commission and any person, other than
the Commission stated that it did ‘‘not
those that may be withheld from the
believe sufficient justification exists at
public in accordance with the
this time to require a unique federal
provisions of 5 U.S.C. 552, will be
standard of care for registered clearing
available for inspection and copying in
agencies.’’ 5 The Commission has left to
the Commission’s Public Reference
user-governed clearing agencies the
Room. Copies of the filing also will be
question of how to allocate losses
available for inspection and copying at
associated with, among other things,
the principal office of the NYSE. All
clearing agency functions. Along this
comments received will be posted
line, in its 1986 order approving a
without change; the Commission does
proposed rule change of the Midwest
not edit personal identifying
Securities Trust Company (‘‘MSTC’’) to
information from submissions. You
clarify the rights and liabilities of MSTC
should submit only information that
and its participants with respect to
you wish to make available publicly. All certain services, the Commission stated:
submissions should refer to File
The Act does not specify the standard of
Number SR–NYSE–2005–91 and should care that must be exercised by registered
clearing agencies and the Commission has
be submitted on or before February 3,
determined that imposition of a unique
2006.
hsrobinson on PROD1PC70 with NOTICES
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.15
Nancy M. Morris,
Secretary.
[FR Doc. E6–325 Filed 1–12–06; 8:45 am]
BILLING CODE 8010–01–P
15 17
CFR 200.30–3(a)(12).
VerDate Aug<31>2005
15:41 Jan 12, 2006
Jkt 208001
federal standard of care for registered
1 Letter from William H. Navin, Executive Vice
President, General Counsel, and Secretary, OCC
(August 17, 2005).
2 15 U.S.C. 78s(b)(1).
3 Securities Exchange Act Release No. 52783
(November 16, 2005), 70 FR 70910.
4 Securities Exchange Act Release No. 16900
(June 17, 1980), 45 FR 45167 (June 23, 1980).
5 Securities Exchange Act Release No. 20221
(September 23, 1983), 48 FR 45167 (October 3,
1983).
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Sfmt 4703
2283
clearing agencies is not appropriate at this
time. [citing Securities Exchange Act Release
No. 20221, supra note 6] 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.6
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.7
With this rule change, OCC is
establishing a comprehensive gross
negligence standard of care and
limitation of liability with respect to its
clearing members. In connection with
this filing, OCC has made the following
representations. OCC states in its
original 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 (1) gross
negligence is the standard of care
generally used by other clearing
agencies such as the Fixed Income
Clearing Corporation, (2) the decision to
apply a gross negligence standard of
care to OCC is a conscious allocation of
risk between OCC and its members, (3)
the filing was unanimously approved by
OCC’s directors, a majority of whom are
officers of clearing members, and (4) the
6 Securities Exchange Act Release No. 22940
(February 24, 1986), 51 FR 7169 (February 28,
1986).
7 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].
E:\FR\FM\13JAN1.SGM
13JAN1
2284
Federal Register / Vol. 71, No. 9 / Friday, January 13, 2006 / Notices
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.8 As such, OCC believes
that a gross negligence standard of care
is appropriate for OCC.9
III. Discussion
Section 19(b) of the Act directs the
Commission to approve a proposed rule
change of a self-regulatory organization
if it finds that such proposed rule
change is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
such organization. Section 17A(b)(3)(F)
of the Act requires that the rules of a
clearing agency be designed to assure
the safeguarding of securities and funds
which are in its custody or control.10
The Commission believes that OCC’s
rule change is consistent with this
Section because it will permit the
resources of OCC to be appropriately
utilized to protect funds and assets.11
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and in
8 Letter
hsrobinson on PROD1PC70 with NOTICES
VerDate Aug<31>2005
15:41 Jan 12, 2006
Jkt 208001
For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.13
Nancy M. Morris,
Secretary.
[FR Doc. E6–252 Filed 1–12–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53069; File No. SR–PCX–
2006–01]
Self-Regulatory Organizations; Pacific
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to Minimum
Price Variation for Entry of Orders for
Equity Securities Traded on the
Archipelago Exchange
January 6, 2006.
from William H. Navin, supra, n. 1.
OCC is amending Article VI of its
By-Laws, ‘‘Clearance of Exchange Transactions,’’ by
adding new Section 25, ‘‘Limitation of Liability,’’
which states:
(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.
10 15 U.S.C. 78q–1(b)(3)(F).
11 The Commission notes that OCC’s adoption of
a comprehensive gross negligence standard of care
and limitation of liability with respect to its
clearing members does not affect the regulatory
standards (e.g., those set forth in Section 17A of the
Act) that apply to OCC or the way in which OCC
conducts its clearing agency operations.
9 Specifically,
particular Section 17A of the Act and
the rules and regulations thereunder.12
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (File No. SR–
OCC–2003–13) be and hereby is
approved.
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 January 4,
2006, the Pacific Exchange, Inc. (‘‘PCX’’
or ‘‘Exchange’’), through its wholly
owned subsidiary, PCX Equities, Inc.
(‘‘PCXE’’), filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
have been prepared by the Exchange.
The PCX filed the proposal pursuant to
Section 19(b)(3)(A) of the Act 3 and Rule
19b–4(f)(6) thereunder,4 which renders
the proposal effective upon filing with
the Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend its
rules governing the Archipelago
12 The Commission notes that the rule change
does not alleviate OCC from liability for violation
of the Federal securities laws where there exists a
private right of action and therefore is not designed
to adversely affect OCC’s compliance with the
Federal securities laws and private rights of action
that exist for violations of the Federal securities
laws.
13 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
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Fmt 4703
Sfmt 4703
Exchange (‘‘ArcaEx’’), the equities
trading facility of PCXE, to: (1) Amend
Commentary .04 to PCXE Rule 7.6 on
minimum price variations for quoting
and entry of orders in equity securities;
(2) delete Commentary .05 to PCXE Rule
7.6; (3) renumber Commentary .06 to
PCXE Rule 7.6 and correct a crossreference in that Commentary; and (4)
delete Commentary .01 to PCXE Rule
6.16. The text of the proposed rule
change is available on the PCX’s Web
site (https://www.pacificex.com), at the
principal office of the PCX, and at the
Commission’s Public Reference Room.
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
Exchange 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. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Commission adopted Regulation
NMS on April 6, 2005.5 One of the new
rules under Regulation NMS is Rule
612, Minimum Pricing Increment. That
rule prohibits a national securities
exchange, its members, and quotation
vendors (among others) from displaying,
ranking, or accepting a bid, offer, order,
or indication of interest for any NMS
stock that is priced in an increment
smaller than $0.01 per share, unless it
is priced less than $1.00 per share.6 In
the latter case, the exchange, its
members, and its quotation vendors may
display, rank, or accept a bid, offer,
order, or indication of interest in the
NMS stock in an increment no smaller
than $0.0001 per share.7 The
compliance date for Rule 612 is January
31, 2006.8
Currently, PCXE Rule 7.6,
Commentary .04 provides that the
minimum price variation (‘‘MPV’’) for
5 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496 (June 29, 2005).
Regulation NMS is comprised of the rules at 17 CFR
642.600–642.612.
6 See 17 CFR 242.612(a).
7 See 17 CFR 242.612(b).
8 See Securities Exchange Act Release No. 52196
(Aug. 2, 2005), 70 FR 45529 (Aug. 8, 2005).
E:\FR\FM\13JAN1.SGM
13JAN1
]]>Agencies
[Federal Register Volume 71, Number 9 (Friday, January 13, 2006)]
[Notices]
[Pages 2283-2284]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-252]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53053; File No. SR-OCC-2003-13]
Self-Regulatory Organizations; The Options Clearing Corporation;
Order Approving Proposed Rule Change To Establish a Comprehensive
Standard of Care and Limitation of Liability With Respect to Clearing
Members
January 5, 2006.
I. Introduction
On November 5, 2003, The Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange Commission (``Commission'') and
on August 18, 2004, amended \1\ proposed rule change SR-OCC-2003-13
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'').\2\ Notice of the proposal was published in the Federal
Register on November 23, 2005.\3\ No comment letters were received. For
the reasons discussed below, the Commission is approving the proposed
rule change.
---------------------------------------------------------------------------
\1\ Letter from William H. Navin, Executive Vice President,
General Counsel, and Secretary, OCC (August 17, 2005).
\2\ 15 U.S.C. 78s(b)(1).
\3\ Securities Exchange Act Release No. 52783 (November 16,
2005), 70 FR 70910.
---------------------------------------------------------------------------
II. Description
In its 1980 release setting forth standards for registration of
clearing agencies, the Commission's 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.''
\4\ In its 1983 order 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.'' \5\ 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 its 1986 order approving a proposed rule change of the
Midwest Securities Trust Company (``MSTC'') to clarify the rights and
liabilities of MSTC and its participants with respect to certain
services, the Commission stated:
---------------------------------------------------------------------------
\4\ Securities Exchange Act Release No. 16900 (June 17, 1980),
45 FR 45167 (June 23, 1980).
\5\ 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 6] 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.\6\
---------------------------------------------------------------------------
\6\ 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.\7\
---------------------------------------------------------------------------
\7\ 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 rule change, OCC is establishing a comprehensive gross
negligence standard of care and limitation of liability with respect to
its clearing members. In connection with this filing, OCC has made the
following representations. OCC states in its original 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 (1) gross negligence is the standard of
care generally used by other clearing agencies such as the Fixed Income
Clearing Corporation, (2) the decision to apply a gross negligence
standard of care to OCC is a conscious allocation of risk between OCC
and its members, (3) the filing was unanimously approved by OCC's
directors, a majority of whom are officers of clearing members, and (4)
the
[[Page 2284]]
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.\8\ As such, OCC believes that a
gross negligence standard of care is appropriate for OCC.\9\
---------------------------------------------------------------------------
\8\ Letter from William H. Navin, supra, n. 1.
\9\ Specifically, OCC is amending Article VI of its By-Laws,
``Clearance of Exchange Transactions,'' by adding new Section 25,
``Limitation of Liability,'' which states:
(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.
---------------------------------------------------------------------------
III. Discussion
Section 19(b) of the Act directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule change is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to such
organization. Section 17A(b)(3)(F) of the Act requires that the rules
of a clearing agency be designed to assure the safeguarding of
securities and funds which are in its custody or control.\10\ The
Commission believes that OCC's rule change is consistent with this
Section because it will permit the resources of OCC to be appropriately
utilized to protect funds and assets.\11\
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78q-1(b)(3)(F).
\11\ The Commission notes that OCC's adoption of a comprehensive
gross negligence standard of care and limitation of liability with
respect to its clearing members does not affect the regulatory
standards (e.g., those set forth in Section 17A of the Act) that
apply to OCC or the way in which OCC conducts its clearing agency
operations.
---------------------------------------------------------------------------
IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
in particular Section 17A of the Act and the rules and regulations
thereunder.\12\
---------------------------------------------------------------------------
\12\ The Commission notes that the rule change does not
alleviate OCC from liability for violation of the Federal securities
laws where there exists a private right of action and therefore is
not designed to adversely affect OCC's compliance with the Federal
securities laws and private rights of action that exist for
violations of the Federal securities laws.
---------------------------------------------------------------------------
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-OCC-2003-13) be and hereby
is approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\13\
---------------------------------------------------------------------------
\13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Nancy M. Morris,
Secretary.
[FR Doc. E6-252 Filed 1-12-06; 8:45 am]
BILLING CODE 8010-01-P
