Self-Regulatory Organizations; the Options Clearing Corporation; Order Granting Approval of a Proposed Rule Change Relating to Choice of Law and Forum Selection, 71469-71470 [E7-24307]

Download as PDF Federal Register / Vol. 72, No. 241 / Monday, December 17, 2007 / Notices applicable to a national securities association.13 In particular, the Commission finds that the proposed rule change is consistent with Section 15A(b)(6) of the Act,14 which requires, among other things, that FINRA’s rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of Electronic Comments trade, to remove impediments to and perfect the mechanism of a free and • Use the Commission’s Internet open market and a national market comment form (http://www.sec.gov/ system, and, in general, to protect rules/sro.shtml); or investors and the public interest. • Send an e-mail to ruleThe proposed rule change would comments@sec.gov. Please include File make FINRA’s NYSE Rule 342.13 Number SR–FINRA–2007–022 on the identical to the version of NYSE Rule subject line. 342.13 in the NYSE rulebook that was Paper Comments recently approved by the Commission.15 • Send paper comments in triplicate In addition, the Commission believes to Nancy M. Morris, Secretary, that the proposed rule change comports Securities and Exchange Commission, with the provisions of the 17d–2 100 F Street, NE., Washington, DC Agreement, as approved by the 20549–1090. Commission, in which FINRA and All submissions should refer to File NYSE agreed to promptly propose Number SR–FINRA–2007–022. This file conforming changes, absent a number should be included on the disagreement about the substance of a subject line if e-mail is used. To help the proposed rule change to one of the Commission process and review your Common Rules, to ensure that such comments more efficiently, please use rules continue to be Common Rules only one method. The Commission will under the Agreement. In this regard, the post all comments on the Commission’s Commission believes it is appropriate Internet Web site (http://www.sec.gov/ for the proposed rule to be effective rules/sro.shtml). Copies of the retroactively as of November 28, 2007, submission, all subsequent which is the date NYSE’s amendment to amendments, all written statements NYSE Rule 342.13 was approved by the with respect to the proposed rule Commission.16 change that are filed with the The Commission finds good cause, Commission, and all written consistent with Section 19(b)(2) of the communications relating to the Act,17 for approving this proposed rule proposed rule change between the change before the thirtieth day after the Commission and any person, other than publication of notice thereof in the those that may be withheld from the Federal Register. This approval allows public in accordance with the the proposed rule change to take effect provisions of 5 U.S.C. 552, will be without delay. NYSE’s proposed available for inspection and copying in revision to NYSE Rule 342.13 was the Commission’s Public Reference published for comment and approved Room on official business days between by the Commission.18 Interested persons the hours of 10 a.m. and 3 p.m. Copies were provided the opportunity to of such filing also will be available for submit comments on rule text that is inspection and copying at the principal identical to FINRA’s proposal, and no office of FINRA. All comments received comments were received. The will be posted without change; the Commission believes FINRA’s proposal Commission does not edit personal raises no new regulatory or substantive identifying information from issues. submissions. You should submit only V. Conclusion information that you wish to make It is therefore ordered, pursuant to available publicly. All submissions should refer to File Number SR–FINRA– Section 19(b)(2) of the Act,19 that the proposed rule change (SR–FINRA– 2007–022 and should be submitted on or before January 7, 2008. ebenthall on PROD1PC69 with NOTICES III. 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: IV. Commission’s Findings and Order Granting Accelerated Approval of the Proposed Rule Change The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder VerDate Aug<31>2005 15:28 Dec 14, 2007 Jkt 214001 13 In approving this proposal, the Commission has considered its impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 14 15 U.S.C. 78o–3(b)(6). 15 See supra, note 4. 16 Id. 17 15 U.S.C. 78s(b)(2). 18 Id. 19 Id. PO 00000 Frm 00125 Fmt 4703 Sfmt 4703 71469 2007–022), be, and it hereby is, approved on an accelerated basis effective November 28, 2007. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–24309 Filed 12–14–07; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–56930; File No. SR–OCC– 2006–09] Self-Regulatory Organizations; the Options Clearing Corporation; Order Granting Approval of a Proposed Rule Change Relating to Choice of Law and Forum Selection December 7, 2007. I. Introduction On May 22, 2006, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) proposed rule change SR–OCC–2006–09 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’).1 Notice of the proposal was published in the Federal Register on April 27, 2007.2 No comment letters were received. For the reasons discussed below, the Commission is granting approval of the proposed rule change. II. Description The proposed rule change will add new general choice of law and forum selection provisions to OCC’s By-Laws. The purpose of the proposed rule change is to ensure there are appropriate choice of law and forum selection provisions governing all contractual relations between OCC and each of its clearing members. The proposed provisions should provide greater clarity, consistency, and predictability in the application of the law to all contractual relations between OCC and each of its clearing members and in the choice of forum in the event of litigation on such matters. OCC’s By-Laws and Rules each currently contain choice of law provisions that apply in somewhat limited circumstances. This approach is problematic as it could lead to inconsistencies between the two provisions or because it may fail to 19 Id. 20 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 Securities Exchange Act Release No. 55653, 1 15 E:\FR\FM\17DEN1.SGM 17DEN1 ebenthall on PROD1PC69 with NOTICES 71470 Federal Register / Vol. 72, No. 241 / Monday, December 17, 2007 / Notices properly specify a governing law with respect to certain contractual relations altogether. Article VI, Section 9(c) of OCC’s ByLaws provides that Illinois law, specifically the Illinois Uniform Commercial Code, is the governing law with respect to cleared contracts. A ‘‘cleared contract’’ is defined in Article I, Section 1 of OCC’s By-Laws as ‘‘a cleared security or commodity future or futures option that is cleared by [OCC].’’ A ‘‘cleared security’’ is defined as ‘‘an option contract (other than a futures option), a security future or a BOUND.’’ However, OCC has interactions and relationships with clearing members not directly involving cleared contracts (e.g., membership and financial requirements). Accordingly, the choice of law provisions in Article VI, Section 9(c) are not comprehensive. OCC Rule 614(m), which clarifies the limited obligations of OCC in connection with pledges of cleared securities, incorporates certain provisions of Article VI, Section 9 of the By-Laws by reference and also contains special provisions applicable in the event that, notwithstanding the choice of law provisions of Article VI, Section 9(c), the laws of a jurisdiction that has not adopted the 1994 revisions to Article 8 and 9 of the UCC are applicable to security interests in pledged securities. However, because all 50 U.S. States, the District of Colombia, the U.S. Virgin Islands, and Puerto Rico have now adopted the 1994 revisions to Article 8 and 9 of the UCC, the special provisions are unnecessary. Article V (Clearing Members), Section 3 (Conditions to Admission), paragraph (k) of OCC’s By-Laws provides that as a condition to admission as a clearing member non-U.S. securities firms must consent to the jurisdiction of Illinois courts and to the application of U.S. law in connection with any dispute with OCC arising from membership. However, this provision only applies to the limited context of disputes with OCC arising from membership. The proposed rule change adds a general choice of law provision to OCC’s By-Laws in order to provide consistency and predictability in the application of the law to all relations between OCC and its clearing members. This new provision will be particularly useful with respect to collateral posted by nonU.S. clearing members where a clear choice of law provision could provide further assurance that OCC’s interests in such collateral are properly perfected. Such a provision will also decrease the likelihood of an inadvertent inconsistency among provisions of the various Articles of the By-Laws. VerDate Aug<31>2005 15:28 Dec 14, 2007 Jkt 214001 Illinois law is the most logical choice to be the governing law under the proposed choice of law provision given OCC’s location and OCC’s familiarity with Illinois law. Selecting Illinois law, along with federal law, as the governing law will also result in greatest consistency with current provisions of OCC’s By-Laws and Rules. In addition, selection of Illinois as the forum for resolving any claims or disputes arising out of or relating to OCC’s By-Laws or Rules will be most logical in light of the consistent application of Illinois law to relations between OCC and its clearing members. The following revisions to OCC’s ByLaws and Rules are necessary to create a general choice of law provision: (1) New Choice of Law Provision: OCC will add a new Section 10 (General Choice of Law and Forum Selection) to Article IX (General Provisions) of its ByLaws. New Section 10 will specify Illinois law as the governing law with respect to OCC’s By-Laws and Rules as well as any agreements between OCC and clearing members. It will also specify that any lawsuits between clearing members and OCC be brought in a federal court or in the absence of federal jurisdiction in a state court located in Chicago, Illinois. Existing Sections 10–12 of Article IX will be renumbered as Sections 11–13 but will otherwise remain unchanged. (2) Amendments to Other Sections of the By-Laws: OCC will remove Article VI, Section 9(c) of the By-Laws in its entirety and replace it with a reference to Article IX, Section 10 of the By-Laws and with a notice provision that persons desiring to perfect security interests in cleared securities should seek the advice of counsel. (3) Amendments to Rules: OCC will make conforming amendments to Rule 604(b)(3)(ii) and to Interpretation and Policy .01 under Rule 614. These amendments are necessary in light of the adoption of the general choice of law provision described above. OCC will also delete language in Rule 614(m) providing for a contingency in the event of the application of the law of a jurisdiction that has not adopted the 1994 amendments to Articles 8 and 9 of the UCC as these are no longer necessary. III. Discussion Section 17A(b)(3)(F) of the Act requires, among other things, that the rules of a clearing agency be designed to assure the safeguarding of securities and funds which are in its custody or control or for which it is responsible. 3 3 15 PO 00000 U.S.C. 78q–1(b)(3)(F). Frm 00126 Fmt 4703 Sfmt 4703 The proposed rule change is designed to eliminate any uncertainty about the law applicable to contractual disputes between OCC and its members and about the forum for any litigation between OCC and its members. Uncertainty about these matters could prolong contractual disputes or litigation, which ultimately could affect or interfere with OCC’s ability to clear and settle securities transactions for one or more of its members. Additionally, the proposed rule change is designed to assure that OCC’s interests in members’ collateral is perfected because the rule change clarifies that Illinois law applies to the securities on deposit at OCC by its foreign members. In the event of a member default, OCC uses such collateral either in the form of margin or clearing fund to meet its settlement obligations and to protect itself and its other members from financial loss. Accordingly, because the proposed rule change adds a new choice of law and forum selection provision to OCC’s rules, the Commission finds that it is designed to assure the safeguarding of securities and funds which are in OCC’s custody or control of for which it is responsible under Section 17A of the Act. 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. 4 It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR– OCC–2006–09) be and hereby is approved. For the Commission by the Division of Trading and Markets, pursuant to delegated authority. 5 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–24307 Filed 12–14–07; 8:45 am] BILLING CODE 8011–01–P SOCIAL SECURITY ADMINISTRATION Privacy Act of 1974, as Amended; Alterations to Existing System of Records, Including New Routine Use AGENCY: Social Security Administration (SSA). 4 In approving the proposed rule change, the Commission considered the proposal’s impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). 5 17 CFR 200.30–3(a)(12). E:\FR\FM\17DEN1.SGM 17DEN1

Agencies

[Federal Register Volume 72, Number 241 (Monday, December 17, 2007)]
[Notices]
[Pages 71469-71470]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-24307]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56930; File No. SR-OCC-2006-09]


Self-Regulatory Organizations; the Options Clearing Corporation; 
Order Granting Approval of a Proposed Rule Change Relating to Choice of 
Law and Forum Selection

December 7, 2007.

I. Introduction

    On May 22, 2006, The Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change SR-OCC-2006-09 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal 
was published in the Federal Register on April 27, 2007.\2\ No comment 
letters were received. For the reasons discussed below, the Commission 
is granting approval of the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 55653, (April 20, 2007), 
72 FR 21062.
---------------------------------------------------------------------------

II. Description

    The proposed rule change will add new general choice of law and 
forum selection provisions to OCC's By-Laws. The purpose of the 
proposed rule change is to ensure there are appropriate choice of law 
and forum selection provisions governing all contractual relations 
between OCC and each of its clearing members. The proposed provisions 
should provide greater clarity, consistency, and predictability in the 
application of the law to all contractual relations between OCC and 
each of its clearing members and in the choice of forum in the event of 
litigation on such matters.
    OCC's By-Laws and Rules each currently contain choice of law 
provisions that apply in somewhat limited circumstances. This approach 
is problematic as it could lead to inconsistencies between the two 
provisions or because it may fail to

[[Page 71470]]

properly specify a governing law with respect to certain contractual 
relations altogether.
    Article VI, Section 9(c) of OCC's By-Laws provides that Illinois 
law, specifically the Illinois Uniform Commercial Code, is the 
governing law with respect to cleared contracts. A ``cleared contract'' 
is defined in Article I, Section 1 of OCC's By-Laws as ``a cleared 
security or commodity future or futures option that is cleared by 
[OCC].'' A ``cleared security'' is defined as ``an option contract 
(other than a futures option), a security future or a BOUND.'' However, 
OCC has interactions and relationships with clearing members not 
directly involving cleared contracts (e.g., membership and financial 
requirements). Accordingly, the choice of law provisions in Article VI, 
Section 9(c) are not comprehensive.
    OCC Rule 614(m), which clarifies the limited obligations of OCC in 
connection with pledges of cleared securities, incorporates certain 
provisions of Article VI, Section 9 of the By-Laws by reference and 
also contains special provisions applicable in the event that, 
notwithstanding the choice of law provisions of Article VI, Section 
9(c), the laws of a jurisdiction that has not adopted the 1994 
revisions to Article 8 and 9 of the UCC are applicable to security 
interests in pledged securities. However, because all 50 U.S. States, 
the District of Colombia, the U.S. Virgin Islands, and Puerto Rico have 
now adopted the 1994 revisions to Article 8 and 9 of the UCC, the 
special provisions are unnecessary.
    Article V (Clearing Members), Section 3 (Conditions to Admission), 
paragraph (k) of OCC's By-Laws provides that as a condition to 
admission as a clearing member non-U.S. securities firms must consent 
to the jurisdiction of Illinois courts and to the application of U.S. 
law in connection with any dispute with OCC arising from membership. 
However, this provision only applies to the limited context of disputes 
with OCC arising from membership.
    The proposed rule change adds a general choice of law provision to 
OCC's By-Laws in order to provide consistency and predictability in the 
application of the law to all relations between OCC and its clearing 
members. This new provision will be particularly useful with respect to 
collateral posted by non-U.S. clearing members where a clear choice of 
law provision could provide further assurance that OCC's interests in 
such collateral are properly perfected. Such a provision will also 
decrease the likelihood of an inadvertent inconsistency among 
provisions of the various Articles of the By-Laws.
    Illinois law is the most logical choice to be the governing law 
under the proposed choice of law provision given OCC's location and 
OCC's familiarity with Illinois law. Selecting Illinois law, along with 
federal law, as the governing law will also result in greatest 
consistency with current provisions of OCC's By-Laws and Rules. In 
addition, selection of Illinois as the forum for resolving any claims 
or disputes arising out of or relating to OCC's By-Laws or Rules will 
be most logical in light of the consistent application of Illinois law 
to relations between OCC and its clearing members.
    The following revisions to OCC's By-Laws and Rules are necessary to 
create a general choice of law provision:
    (1) New Choice of Law Provision: OCC will add a new Section 10 
(General Choice of Law and Forum Selection) to Article IX (General 
Provisions) of its By-Laws. New Section 10 will specify Illinois law as 
the governing law with respect to OCC's By-Laws and Rules as well as 
any agreements between OCC and clearing members. It will also specify 
that any lawsuits between clearing members and OCC be brought in a 
federal court or in the absence of federal jurisdiction in a state 
court located in Chicago, Illinois. Existing Sections 10-12 of Article 
IX will be renumbered as Sections 11-13 but will otherwise remain 
unchanged.
    (2) Amendments to Other Sections of the By-Laws: OCC will remove 
Article VI, Section 9(c) of the By-Laws in its entirety and replace it 
with a reference to Article IX, Section 10 of the By-Laws and with a 
notice provision that persons desiring to perfect security interests in 
cleared securities should seek the advice of counsel.
    (3) Amendments to Rules: OCC will make conforming amendments to 
Rule 604(b)(3)(ii) and to Interpretation and Policy .01 under Rule 614. 
These amendments are necessary in light of the adoption of the general 
choice of law provision described above. OCC will also delete language 
in Rule 614(m) providing for a contingency in the event of the 
application of the law of a jurisdiction that has not adopted the 1994 
amendments to Articles 8 and 9 of the UCC as these are no longer 
necessary.

III. Discussion

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a clearing agency be designed to assure the safeguarding 
of securities and funds which are in its custody or control or for 
which it is responsible. \3\ The proposed rule change is designed to 
eliminate any uncertainty about the law applicable to contractual 
disputes between OCC and its members and about the forum for any 
litigation between OCC and its members. Uncertainty about these matters 
could prolong contractual disputes or litigation, which ultimately 
could affect or interfere with OCC's ability to clear and settle 
securities transactions for one or more of its members. Additionally, 
the proposed rule change is designed to assure that OCC's interests in 
members' collateral is perfected because the rule change clarifies that 
Illinois law applies to the securities on deposit at OCC by its foreign 
members. In the event of a member default, OCC uses such collateral 
either in the form of margin or clearing fund to meet its settlement 
obligations and to protect itself and its other members from financial 
loss. Accordingly, because the proposed rule change adds a new choice 
of law and forum selection provision to OCC's rules, the Commission 
finds that it is designed to assure the safeguarding of securities and 
funds which are in OCC's custody or control of for which it is 
responsible under Section 17A of the Act.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

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

    \4\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-OCC-2006-09) be and hereby 
is approved.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority. \5\
---------------------------------------------------------------------------

    \5\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-24307 Filed 12-14-07; 8:45 am]
BILLING CODE 8011-01-P