Self-Regulatory Organizations; the Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Amendment No. 5 of the Restated Participant Exchange Agreement, 24648-24650 [E7-8429]
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24648
Federal Register / Vol. 72, No. 85 / Thursday, May 3, 2007 / Notices
19(b)(3)(A) of the Act 15 and Rule 19b–
4(f)(6) thereunder.16
At any time within 60 days of the
filing of the 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
<bullet≤ Use the Commission’s
Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
<bullet≤ Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–CBOE–2007–38 on the subject
line.
Paper Comments
<bullet≤ Send paper comments in
triplicate to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
15 U.S.C. 78s(b)(3)(A).
17 CFR 240.19b–4(f)(6). Rule 19b–4(f)(6) also
requires the self-regulatory organization to give the
Commission 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. CBOE has satisfied the five-day prefiling requirement. As set forth in the Commission’s
initial approval of the Pilot Program, if CBOE
proposes to: (1) Extend the Pilot Program; (2)
expand the number of options eligible for inclusion
in the Pilot Program; or (3) seek permanent
approval of the Pilot Program, it must submit a Pilot
Program report to the Commission along with the
filing of its proposal to extend, expand, or seek
permanent approval of the Pilot Program. CBOE
must file any proposal to expand or seek permanent
approval of the Pilot Program and the Pilot Program
report with the Commission at least 60 days prior
to the expiration of the Pilot Program. The Pilot
Program report must cover the entire time the Pilot
Program was in effect and must include: (1) Data
and written analysis on the open interest and
trading volume for options (at all strike price
intervals) selected for the Pilot Program; (2) delisted
options series (for all strike price intervals) for all
options selected for the Pilot Program; (3) an
assessment of the appropriateness of $1 strike price
intervals for the options CBOE selected for the Pilot
Program; (4) an assessment of the impact of the
Pilot Program on the capacity of CBOE’s, OPRA’s,
and vendors’ automated systems; (5) any capacity
problems or other problems that arose during the
operation of the Pilot Program and how CBOE
addressed them; (6) any complaints that CBOE
received during the operation of the Pilot Program
and how CBOE addressed them; and (7) any
additional information that would help to assess the
operation of the Pilot Program. See Pilot Approval
Order, supra note 5.
15
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16
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100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File No.
SR–CBOE–2007–38. 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
Room. Copies of such filing will also be
available for inspection and copying at
the principal office of CBOE. 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 No.
SR–CBOE–2007–38 and should be
submitted on or before May 24, 2007.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.17
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–8396 Filed 5–2–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–55681; File No. SR–OCC–
2007–03]
Self-Regulatory Organizations; the
Options Clearing Corporation; Notice
of Filing and Immediate Effectiveness
of a Proposed Rule Change Relating to
Amendment No. 5 of the Restated
Participant Exchange Agreement
April 27, 2007.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934,1 notice
is hereby given that on March 13, 2007,
The Options Clearing Corporation
(‘‘OCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
PO 00000
17 CFR 200.30–3(a)(12).
15 U.S.C. 78s(b)(1).
the proposed rule change as described
in Items I, II and III below, which Items
have been prepared substantially by
OCC. OCC filed the proposed rule
change pursuant to Section
19(b)(3)(A)(iii) of the Act 2 and Rule
19b–4(f)(4) 3 thereunder so that the
proposal was 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 proposed rule change would
amend the Restated Participant
Exchange Agreement (‘‘RPEA’’) between
and among OCC and its six participant
exchanges, which are the American
Stock Exchange LLC, the Boston Stock
Exchange, Inc., the Chicago Board
Options Exchange, Inc., the
International Securities Exchange, LLC
(‘‘ISE’’), NYSE Arca, Inc., and the
Philadelphia Stock Exchange, Inc.
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 such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
The proposed rule change amends
Sections 2(g) and 23 of the RPEA that
obligates the participant exchanges to
indemnify OCC against specified losses
incurred in connection with the
introduction of new products.
1. Background
New derivative products pose a
variety of legal risks to OCC. While OCC
generally declines to clear a product if
it believes that there are valid concerns
as to the product’s legality, there can be
no assurance that a product’s legality
will not be later challenged. Litigating
such matters can be expensive, and an
adverse outcome or settlement could
result in substantial liabilities to OCC.
17
2
1
3
Frm 00091
Fmt 4703
Sfmt 4703
15 U.S.C. 78s(b)(3)(A)(iii).
17 CFR 240.19b–4(f)(4).
E:\FEDREG\03MYN1.LOC
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Federal Register / Vol. 72, No. 85 / Thursday, May 3, 2007 / Notices
New products sometimes raise
intellectual property (‘‘IP’’) issues. For
example, in January 2005 when the ISE
proposed to trade unlicensed options on
SPDRs, Standard & Poor’s parent
company, the McGraw-Hill Companies,
sued ISE and OCC asserting that a
license was required not only to trade
options on a proprietary index but also
options on an exchange trade fund
(‘‘ETF’’) based on a proprietary index.4
In May 2005, when ISE proposed to
trade unlicensed options on
DIAMONDS, Dow Jones & Company
filed a similar action against ISE and
OCC.5 (The two lawsuits were later
consolidated and eventually dismissed
by court order, which order was upheld
on appeal.) 6 More recently, ISE and
OCC were sued by the Chicago Board
Options Exchange, Incorporated
(‘‘CBOE’’) and two co-plaintiffs that
asserted that ISE had proposed to trade
unlicensed options on the S&P 500
Index and the Dow Jones Industrial
Average in violation of exclusive license
arrangement between CBOE and each of
its co-plaintiffs.7
The current RPEA between and
among OCC and the six options
exchanges obligates the exchanges to
indemnify OCC against specified losses
(e.g., losses resulting from an exchange’s
violation of the Act or the RPEA or
failure to make adequate disclosure
regarding a product that it trades).
However, the current RPEA does not
generally obligate the exchanges to
indemnify OCC against losses resulting
from a product’s illegality or against IP
liability.8
2. Discussion
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OCC is not obligated to clear a
product if doing so would be illegal or
4 The McGraw-Hill Companies, Inc. v.
International Securities Exchange, Inc. and The
Options Clearing Corporation, 05 Civ. 112 (HB)
(U.S.D.C. S.D.N.Y.) In consideration of OCC’s
agreeing to clear unlicensed SPDR options, ISE
agreed to indemnify OCC against any resulting
liabilities or expenses.
5 Dow Jones & Company, Inc. v. International
Securities Exchange, Inc. and The Options Clearing
Corporation, 05 CV 4954 (U.S.D.C. S.D.N.Y.) As in
the SPDR case, id., ISE agreed to indemnify OCC
against any resulting liabilities or expenses.
6 Dow Jones & Co. v. International Securities
Exchange, Inc., 451 F.3d 295 (2d Cir. 2006).
7 Chicago Board Options Exchange, Incorporated,
et al v. International Securities Exchange, LLC and
The Options Clearing Corporation, 06 CH 24798,
Circuit Court of Cook County, Ill., Chancery
Division.
8 OCC’s clearing agreement for futures products,
which was drafted more recently than the RPEA,
contains broader indemnification provisions. It
obligates the futures exchange to indemnify OCC
against losses resulting from the exchange’s
violation of ‘‘any law or governmental regulation’’
and contains an express indemnity for IP liability.
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05:02 Aug 19, 2011
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would violate the IP rights of others.9
However, legal issues are not always
identifiable in advance. For example,
claims that a new product violates IP
rights of third parties may not surface
until after the product is already
trading. Even when an issue is
identified in advance, OCC’s assessment
of its seriousness may be erroneous.
For these reasons, no matter how
carefully OCC analyzes new products,
there will often be some legal risk. To
mitigate this risk, OCC and its
participant exchanges are amending the
RPEA to obligate an exchange that
introduces a new product to provide
indemnification similar to that required
of futures exchanges for which OCC
provides clearing services.10 The terms
of the amendment reflect the agreement
of each participant exchange to
severally, and not jointly, indemnify
OCC and specified affiliates against
losses and expenses incurred in
connection with any action based on
any options claim (i.e., a claim that the
exchange does not have the right to
trade an option or that the trading of
such option by the exchange, that the
issuance of such option by OCC or that
the clearance and settlement of trades
therein or exercises thereof by OCC
would violate the IP or other rights of
a third party).11 In addition, the
amendment redesignates and makes
certain technical changes in preexisting
indemnification provisions.12
OCC believes that the proposed
change is consistent with Section 17A of
the Act of 1934 and the rules
promulgated thereunder because it
reduces the legal exposure borne by
OCC in connection with issuing and
clearing new derivative products
introduced by its participant exchanges
and thereby strengthening OCC’s ability
to perform its duties as a registered
clearing agency. OCC further states that
the proposed change contributes to the
safeguarding of securities and funds in
the custody or control of OCC and that
the proposed rule change is not
inconsistent with the existing rules of
OCC, including any other rules
proposed to be amended.
9 Section 3 of the RPEA provides that if a
proposed underlying interest does not fall within
certain specified categories, OCC cannot be required
to clear options on it without the approval of its
Board. Even when the interest does fall within the
specified categories (e.g., a securities index), OCC
could not be required to clear options on it if doing
so would be unlawful.
10 See e.g., Filings No. SR–OCC–2006–18 (futures
clearing agreement with PBOT) and 2003–06
(futures clearing agreement with CFE).
11 New Sections 23(c) through (g) of the RPEA.
12 See Section 1 of Amendment No. 5 and
redesignated Sections 23(c) and (h) of the RPEA.
PO 00000
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Fmt 4703
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24649
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
OCC has not solicited or received
written comments relating to the
proposed rule change. OCC will notify
the Commission of any written
comments it receives.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(iii) of the Act 13 and Rule
19b–4(f)(4) 14 thereunder because it
effects a change in an existing OCC
service that does not adversely affect the
safeguarding of securities or funds in
OCC’s custody or control or for which
it is responsible and does not
significantly affect the respective rights
or obligations of OCC or persons using
the service. At any time within 60 days
of the filing of the proposed rule change,
the Commission may summarily
abrogate such rule 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
<bullet≤ Use the Commission’s
Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
<bullet≤ Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–OCC–2007–03 on the subject
line.
Paper Comments
<bullet≤ Send paper comments in
triplicate to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File No.
SR–OCC–2007–03. This file number
13
14
15 U.S.C. 78s(b)(3)(A)(iii).
17 CFR 240.19b–4(f)(4).
E:\FEDREG\03MYN1.LOC
03MYN1
24650
Federal Register / Vol. 72, No. 85 / Thursday, May 3, 2007 / Notices
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 OCC’s principal office and on OCC’s
Web site at https://www.theocc.com/
publications/rules/proposed—changes/
proposed—changes.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 No. SR–OCC–2007–
03 and should be submitted on or before
May 24, 2007.
For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.15
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–8429 Filed 5–2–07; 8:45 am]
Percent
BILLING CODE 8010–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration ● 10855 and ● 10856]
New Jersey Disaster ● NJ–00006
U.S. Small Business
Administration.
ACTION: Notice.
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AGENCY:
SUMMARY: This is a Notice of the
Presidential declaration of a major
disaster for the State of New Jersey
(FEMA–1694–DR), dated April 26, 2007.
Incident: Severe Storms and Inland
and Coastal Flooding.
Incident Period: April 14, 2007
through April 20, 2007.
Effective Date: April 26, 2007.
Physical Loan Application Deadline
Date: June 25, 2007.
15
17 CFR 200.30–3(a)(12).
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05:02 Aug 19, 2011
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Economic Injury (EIDL) Loan
Application Deadline Date: January 28,
2008.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street, SW., Suite 6050,
Washington, DC 20416.
SUPPLEMENTARY INFORMATION: Notice is
hereby given that as a result of the
President’s major disaster declaration on
04/26/2007, applications for disaster
loans may be filed at the address listed
above or other locally announced
locations.
The following areas have been
determined to be adversely affected by
the disaster:
Primary Counties (Physical Damage and
Economic Injury Loans):
Bergen, Burlington, Essex, Passaic,
Somerset, Union.
Contiguous Counties (Economic Injury
Loans Only):
New Jersey: Atlantic, Camden,
Hudson, Hunterdon, Mercer,
Middlesex, Monmouth, Morris,
Ocean, Sussex.
New York: Bronx, York, Orange,
Rockland, Westchester.
Pennsylvania: Bucks, Philadelphia.
The Interest Rates are:
For Physical Damage:
Homeowners With Credit
Available Elsewhere ..........
Homeowners Without Credit
Available Elsewhere ..........
Businesses With Credit Available Elsewhere ..................
Other (Including Non-Profit
Organizations) With Credit
Available Elsewhere ..........
Businesses And Non-Profit
Organizations
Without
Credit Available Elsewhere
For Economic Injury:
Businesses & Small Agricultural Cooperatives Without
Credit Available Elsewhere
SMALL BUSINESS ADMINISTRATION
Notice of Action Subject to
Intergovernmental Review Under
Executive Order 12372
U.S. Small Business
Administration.
ACTION: Notice of Action Subject to
Intergovernmental Review Under
Executive Order 12372.
AGENCY:
SUMMARY: The Small Business
Administration (SBA) is notifying the
public that it intends to grant the
pending applications of 22 existing
Small Business Development Centers
(SBDCs) for refunding on October 1,
2007, subject to the availability of funds.
Six states do not participate in the EO
12372 process; therefore, their addresses
are not included. A short description of
the SBDC program follows in the
supplementary information below.
The SBA is publishing this notice at
least 60 days before the expected
refunding date. The SBDCs and their
mailing addresses are listed below in
the address section. A copy of this
notice also is being furnished to the
respective State single points of contact
designated under the Executive Order.
Each SBDC application must be
consistent with any area-wide small
business assistance plan adopted by a
State-authorized agency.
DATES: A State single point of contact
and other interested State or local
entities may submit written comments
regarding an SBDC refunding within 30
days from the date of publication of this
notice to the SBDC.
ADDRESSES:
Addresses of Relevant Sbdc State
Directors
2.875 Mr. Al Salgado, Region Director, Univ.
of Texas at San Antonio, 501 West
8.000
Durango Blvd., San Antonio, TX
78207, (210) 458–2450.
5.250 Mr. Clinton Tymes, State Director,
University of Delaware, One
Innovation Way, Suite 301, Newark,
DE 19711, (302) 831–2747.
4.000
Ms. M.E. Gamble, State Director, West
Virginia Development Office, Capitol
Complex, Building 6, Room 652,
4.000
Charleston, WV 25301, (304) 558–
2960.
The number assigned to this disaster
Ms. Carmen Marti, SBDC Director, Inter
for physical damage is 108556 and for
American University of Puerto Rico,
economic injury is 108560.
Ponce de Leon Avenue, ι416, Edificio
Union Plaza, Seventh Floor, Hato Rey,
(Catalog of Federal Domestic Assistance
PR 00918, (787) 763–6811.
Numbers 59002 and 59008)
Mr. Michael Young, Region Director,
Jane M. Pease,
University of Houston, 2302 Fannin,
Acting Associate Administrator for Disaster
Suite 200, Houston, TX 77002, (713)
Assistance.
752–8425.
[FR Doc. E7–8425 Filed 5–2–07; 8:45 am]
Ms. Liz Klimback, Region Director,
BILLING CODE 8025–01–P
Dallas Community College, 1402
PO 00000
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]]>Agencies
[Federal Register Volume 72, Number 85 (Thursday, May 3, 2007)]
[Notices]
[Pages 24648-24650]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-8429]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55681; File No. SR-OCC-2007-03]
Self-Regulatory Organizations; the Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to Amendment No. 5 of the Restated Participant Exchange
Agreement
April 27, 2007.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934,\1\ notice is hereby given that on March 13, 2007, The Options
Clearing Corporation (``OCC'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I, II and III below, which Items have been prepared substantially
by OCC. OCC filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \2\ and Rule 19b-4(f)(4) \3\ thereunder so
that the proposal was effective upon filing with the Commission. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78s(b)(3)(A)(iii).
\3\ 17 CFR 240.19b-4(f)(4).
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The proposed rule change would amend the Restated Participant
Exchange Agreement (``RPEA'') between and among OCC and its six
participant exchanges, which are the American Stock Exchange LLC, the
Boston Stock Exchange, Inc., the Chicago Board Options Exchange, Inc.,
the International Securities Exchange, LLC (``ISE''), NYSE Arca, Inc.,
and the Philadelphia Stock Exchange, Inc.
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 such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The proposed rule change amends Sections 2(g) and 23 of the RPEA
that obligates the participant exchanges to indemnify OCC against
specified losses incurred in connection with the introduction of new
products.
1. Background
New derivative products pose a variety of legal risks to OCC. While
OCC generally declines to clear a product if it believes that there are
valid concerns as to the product's legality, there can be no assurance
that a product's legality will not be later challenged. Litigating such
matters can be expensive, and an adverse outcome or settlement could
result in substantial liabilities to OCC.
[[Page 24649]]
New products sometimes raise intellectual property (``IP'') issues.
For example, in January 2005 when the ISE proposed to trade unlicensed
options on SPDRs, Standard & Poor's parent company, the McGraw-Hill
Companies, sued ISE and OCC asserting that a license was required not
only to trade options on a proprietary index but also options on an
exchange trade fund (``ETF'') based on a proprietary index.\4\ In May
2005, when ISE proposed to trade unlicensed options on DIAMONDS, Dow
Jones & Company filed a similar action against ISE and OCC.\5\ (The two
lawsuits were later consolidated and eventually dismissed by court
order, which order was upheld on appeal.) \6\ More recently, ISE and
OCC were sued by the Chicago Board Options Exchange, Incorporated
(``CBOE'') and two co-plaintiffs that asserted that ISE had proposed to
trade unlicensed options on the S&P 500 Index and the Dow Jones
Industrial Average in violation of exclusive license arrangement
between CBOE and each of its co-plaintiffs.\7\
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\4\ The McGraw-Hill Companies, Inc. v. International Securities
Exchange, Inc. and The Options Clearing Corporation, 05 Civ. 112
(HB) (U.S.D.C. S.D.N.Y.) In consideration of OCC's agreeing to clear
unlicensed SPDR options, ISE agreed to indemnify OCC against any
resulting liabilities or expenses.
\5\ Dow Jones & Company, Inc. v. International Securities
Exchange, Inc. and The Options Clearing Corporation, 05 CV 4954
(U.S.D.C. S.D.N.Y.) As in the SPDR case, id., ISE agreed to
indemnify OCC against any resulting liabilities or expenses.
\6\ Dow Jones & Co. v. International Securities Exchange, Inc.,
451 F.3d 295 (2d Cir. 2006).
\7\ Chicago Board Options Exchange, Incorporated, et al v.
International Securities Exchange, LLC and The Options Clearing
Corporation, 06 CH 24798, Circuit Court of Cook County, Ill.,
Chancery Division.
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The current RPEA between and among OCC and the six options
exchanges obligates the exchanges to indemnify OCC against specified
losses (e.g., losses resulting from an exchange's violation of the Act
or the RPEA or failure to make adequate disclosure regarding a product
that it trades). However, the current RPEA does not generally obligate
the exchanges to indemnify OCC against losses resulting from a
product's illegality or against IP liability.\8\
---------------------------------------------------------------------------
\8\ OCC's clearing agreement for futures products, which was
drafted more recently than the RPEA, contains broader
indemnification provisions. It obligates the futures exchange to
indemnify OCC against losses resulting from the exchange's violation
of ``any law or governmental regulation'' and contains an express
indemnity for IP liability.
---------------------------------------------------------------------------
2. Discussion
OCC is not obligated to clear a product if doing so would be
illegal or would violate the IP rights of others.\9\ However, legal
issues are not always identifiable in advance. For example, claims that
a new product violates IP rights of third parties may not surface until
after the product is already trading. Even when an issue is identified
in advance, OCC's assessment of its seriousness may be erroneous.
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\9\ Section 3 of the RPEA provides that if a proposed underlying
interest does not fall within certain specified categories, OCC
cannot be required to clear options on it without the approval of
its Board. Even when the interest does fall within the specified
categories (e.g., a securities index), OCC could not be required to
clear options on it if doing so would be unlawful.
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For these reasons, no matter how carefully OCC analyzes new
products, there will often be some legal risk. To mitigate this risk,
OCC and its participant exchanges are amending the RPEA to obligate an
exchange that introduces a new product to provide indemnification
similar to that required of futures exchanges for which OCC provides
clearing services.\10\ The terms of the amendment reflect the agreement
of each participant exchange to severally, and not jointly, indemnify
OCC and specified affiliates against losses and expenses incurred in
connection with any action based on any options claim (i.e., a claim
that the exchange does not have the right to trade an option or that
the trading of such option by the exchange, that the issuance of such
option by OCC or that the clearance and settlement of trades therein or
exercises thereof by OCC would violate the IP or other rights of a
third party).\11\ In addition, the amendment redesignates and makes
certain technical changes in preexisting indemnification
provisions.\12\
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\10\ See e.g., Filings No. SR-OCC-2006-18 (futures clearing
agreement with PBOT) and 2003-06 (futures clearing agreement with
CFE).
\11\ New Sections 23(c) through (g) of the RPEA.
\12\ See Section 1 of Amendment No. 5 and redesignated Sections
23(c) and (h) of the RPEA.
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OCC believes that the proposed change is consistent with Section
17A of the Act of 1934 and the rules promulgated thereunder because it
reduces the legal exposure borne by OCC in connection with issuing and
clearing new derivative products introduced by its participant
exchanges and thereby strengthening OCC's ability to perform its duties
as a registered clearing agency. OCC further states that the proposed
change contributes to the safeguarding of securities and funds in the
custody or control of OCC and that the proposed rule change is not
inconsistent with the existing rules of OCC, including any other rules
proposed to be amended.
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
OCC has not solicited or received written comments relating to the
proposed rule change. OCC will notify the Commission of any written
comments it receives.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(iii) of the Act \13\ and Rule 19b-4(f)(4) \14\ thereunder
because it effects a change in an existing OCC service that does not
adversely affect the safeguarding of securities or funds in OCC's
custody or control or for which it is responsible and does not
significantly affect the respective rights or obligations of OCC or
persons using the service. At any time within 60 days of the filing of
the proposed rule change, the Commission may summarily abrogate such
rule 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.
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\13\ 15 U.S.C. 78s(b)(3)(A)(iii).
\14\ 17 CFR 240.19b-4(f)(4).
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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 No. SR-OCC-2007-03 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File No. SR-OCC-2007-03. This file
number
[[Page 24650]]
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 OCC's principal office and on OCC's Web site at https://www.theocc.com/publications/rules/proposed_changes/ proposed--
changes.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 No. SR-OCC-
2007-03 and should be submitted on or before May 24, 2007.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-8429 Filed 5-2-07; 8:45 am]
BILLING CODE 8010-01-P
