Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change Relating to Cross-Margining, 46133-46136 [E8-18237]

Download as PDF Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices of fees applicable on prior trading days in order to permit members to understand and evaluate their invoices from Nasdaq. Nasdaq believes that these routing fees and the proposed approach to displaying them are competitive, fair and reasonable, and non-discriminatory in that they replicate the fees assessed by away markets executing orders routed from Nasdaq. Nasdaq believes that displaying its fees on a wellpublicized and accessible Web site and maintaining an historical record of fee changes will provide sufficient transparency for Nasdaq members that voluntarily choose to use Nasdaq systems to route orders in standardized options. 2. Statutory Basis Nasdaq believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,6 in general, and with Section 6(b)(4) of the Act,7 in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility or system which Nasdaq operates or controls. Nasdaq is one of seven options market in the national market system for standardized options. Joining Nasdaq and electing to trade options is entirely voluntary. Under these circumstances, Nasdaq’s fees must be competitive and low in order for Nasdaq to attract order flow, execute orders, and grow as a market. The various exchanges have filed these fees with the Commission and it is reasonable for Nasdaq to pass those fees through to its members. As such, Nasdaq believes that its fees are fair and reasonable and consistent with the Exchange Act. sroberts on PROD1PC70 with NOTICES B. Self-Regulatory Organization’s Statement on Burden on Competition Nasdaq does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. To the contrary, Nasdaq has designed its fees to compete effectively for the execution and routing of options contracts and to reduce the overall cost to investors of options trading. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments were neither solicited nor received. 6 15 7 15 U.S.C. 78f. U.S.C. 78f(b)(4). VerDate Aug<31>2005 16:49 Aug 06, 2008 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Pursuant to Section 19(b)(3)(A)(ii) of the Act 8 and Rule 19b–4(f)(2) thereunder,9 Nasdaq has designated this proposal as establishing or changing a due, fee, or other charge applicable only to members, which renders the proposed rule change effective upon filing. Nasdaq will make the proposed pricing schedule operational on August 1, 2008. 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 • 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-NASDAQ–2008–066 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2008–066. 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 8 15 9 17 Jkt 214001 PO 00000 U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f)(2). Frm 00197 Fmt 4703 Sfmt 4703 46133 provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. 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 publicly available. All submissions should refer to File Number SR–NASDAQ–2008–066 and should be submitted on or before August 28, 2008 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Florence E. Harmon, Acting Secretary. [FR Doc. E8–18159 Filed 8–6–08; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58258; File No. SR–OCC– 2008–12] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change Relating to CrossMargining July 30, 2008. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934,1 notice is hereby given that on June 10, 2008, 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 primarily by OCC. The Commission is publishing this notice and order to solicit comments on the proposed rule change from interested persons and to grant accelerated approval of the proposal. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change The proposed rule change would amend OCC Rule 705 to add shares of money market funds as a form of collateral that may be deposited and recognized with respect to cross-margin (‘‘XM’’) accounts. In addition, the proposed rule change revises the cross10 17 1 15 E:\FR\FM\07AUN1.SGM CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 07AUN1 46134 Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices margining agreement between OCC and the Chicago Mercantile Exchange, Inc., (‘‘CME’’) to reflect the allowance of money market fund shares as acceptable collateral. 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. sroberts on PROD1PC70 with NOTICES A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change OCC Rule 705 specifies the forms of collateral that may be deposited with respect to cross-margin (‘‘XM’’) accounts to meet required margin. Such forms of collateral currently include cash, government securities, government sponsored debt securities, letters of credit, and, if mutually acceptable to the XM clearing organizations, common stock. OCC staff regularly reviews these forms of collateral with an approach of determining a suitable balance between its clearing members’ desire for a diverse combination of readily-available and cost-effective financial instruments and OCC’s interest to access financial instruments that are relatively stable in value and easily converted to cash. Based on such a review, OCC is proposing to expand the forms of margin collateral acceptable for XM accounts to include shares in money market funds (‘‘MMF Shares’’). MMF Shares have been increasingly used to collateralize accounts at futures clearinghouses following the December 2000 amendments to Commodity Futures Trading Commission Regulation 1.25, which allow a futures commission merchant or a derivatives clearing organization to invest segregated funds in money market funds.2 OCC has accepted MMF Shares as collateral for several years.3 XM participants therefore desire to hypothecate shares in 2 Rules Relating to Intermediaries of Commodity Interest Transactions, 65 FR 77993 (Dec. 13, 2000). OCC estimates that MMF shares account for approximately 30% of the performance bond deposits at the two largest futures clearinghouses, CME and the New York Mercantile Exchange. 3 Securities Exchange Act Release No. 47599 (Mar. 31, 2003), 68 FR 16849 (Apr. 7, 2003). VerDate Aug<31>2005 16:49 Aug 06, 2008 Jkt 214001 such funds as margin for their XM accounts as well. Under the rule change, the underlying money market funds will be required to continuously meet the qualification standards of both OCC and the participating Commodity Clearing Organization (‘‘CCO’’) and will be valued at the lowest value given to MMF Shares under OCC’s or the CCO’s rules. Initially, OCC proposes to permit MMF Shares to be deposited as collateral in connection with its XM program with CME.4 Operationally, the shares will be transferred into an account held with the fund issuer that will be jointly controlled by OCC and CME for purposes of perfecting their security interest in deposited shares. Clearing members will request the purchase of money market mutual fund shares from either OCC or CME. The shares will be jointly purchased by the clearinghouses using the funds of the requesting clearing member(s) that have been drafted from the bank account established in respect of the applicable cross-margining account (i.e., proprietary or segregated funds account). These shares will then be deposited in an account jointly controlled by OCC and the CME, and the clearing member(s) will receive margin credit for the collateral value less the applicable haircut of the shares purchased. Shares will be redeemed for cash from the fund issuer upon the instruction of either (i) the clearing member(s), with the proceeds being returned to the appropriate bank account, or (ii) the clearing organizations, upon the suspension of the clearing member(s) with proceeds being deposited into the appropriate liquidating settlement account for distribution in accordance with the XM agreement between OCC and CME. To permit the use of MMF Shares as a form of margin once all necessary regulatory approvals are obtained, OCC and CME have amended and restated 4 Presently, OCC maintains XM programs with the CME, The Clearing Corporation (‘‘CCorp’’) and ICE Clear U.S., Inc. (‘‘ICE Clear’’). However, there is currently no clearing member participating in the OCC/CCorp XM program. If that XM program becomes active again in the future and there is interest in MMF Shares as a form of margin collateral, OCC would then file with the Commission a proposed rule change to amend the OCC/CCorp XM agreement to include MMF Shares. OCC and ICE Clear have determined to defer including MMF Shares in their XM program until the clearing organizations have determined that there is clearing member interest in using such collateral. Because MMF Shares will not be an allowable form of collateral in all OCC XM programs, Rule 705 has been amended to provide that forms of margin collateral must be mutually acceptable to OCC and each participating CCO. This requirement is currently applied to deposits of common stock. PO 00000 Frm 00198 Fmt 4703 Sfmt 4703 their Cross-Margining Agreement (‘‘Original Agreement’’), which also has been updated to reflect the withdrawal in 2004 of the New York Clearing Corporation (‘‘NYCC’’) as a party thereto.5 With the elimination of NYCC as a party to the Original Agreement, the New Agreement accommodates the current OCC/CME bilateral crossmargining program but no longer provides for a trilateral cross-margining program. Other significant differences between the Original Agreement and the New Agreement are as follows. Section 1 of the New Agreement contains definitional terms. Section 1 has been modified to add a definitional term for MMF Shares (Section 1(q)) and to revise other definitions to reflect the bilateral nature of the OCC/CME XM program. As defined, MMF Shares refer to shares in a money market fund that meet the requirements established under OCC’s and CME’s rules.6 References to NYCC have been eliminated from all the definition provisions and throughout the crossmargining agreement. The term ‘‘Carrying Clearing Organization’’ has been eliminated as unnecessary. The terms ‘‘Pair of Non-Proprietary X–M Accounts’’ and ‘‘Pair of X–M Accounts,’’ respectively, have replaced the terms ‘‘Sets of Non-Proprietary X–M Accounts’’ and ‘‘Sets of Proprietary X– M Accounts’’ (Sections 1(s) and (w)) in order to reflect the bilateral nature of the OCC/CME XM program. Changes reflecting the deletion of the terms ‘‘Carrying Clearing Organization,’’ ‘‘Sets of Non-Proprietary X–M Accounts,’’ and ‘‘Sets of Proprietary X–M Accounts’’ have been made throughout the New Agreement. The definition of ‘‘Market Professional’’ (Section 1(p)) has been revised to eliminate references to NYFE members, which is the former name of the market for which NYCC provides clearing services. Other than referencing pairs of XM accounts, as applicable, no substantive changes have been made to Sections 2, 3, and 4. Section 5, which relates to the calculation of margin, is also substantively unchanged other than 5 The Amended and Restated Cross-Margining Agreement (‘‘New Agreement’’) is attached to OCC’s rule filing as Exhibit 5A. From 1997 to 2004, NYCC (now known as ICE Clear, U.S., Inc.) participated in a trilateral XM program with OCC and CME. See Securities Exchange Act Release No. 38584 (May 8, 1997), 62 FR 26602 (May 14, 1997) (order approving a cross-margining agreement among OCC, CME, and the Commodity Clearing Corporation). The agreement governing this trilateral XM also sets forth the terms and conditions governing the current bilateral program between OCC and CME. 6 OCC’s criteria for accepting deposits of MMF shares as margin are set forth in OCC Rule 604(b)(3). This rule, among other things, establishes concentration, control, and valuation standards governing money market fund shares. E:\FR\FM\07AUN1.SGM 07AUN1 Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices sroberts on PROD1PC70 with NOTICES the deletion of an unnecessary provision regarding NYCC’s election to use the margin calculation produced by the designated clearing organization’s margin system. Section 6 relates to the forms and method of holding initial margin. As revised, Section 6 permits the deposit of MMF Shares as a form of initial margin and requires such shares to be held for the joint benefit of the clearing organizations on the books of the issuing fund or its agent or in such other manner as mutually agreed upon by the clearing organizations.7 Unnecessary references to the CME acting as NYCC’s agent for the purpose of executing instructions to release forms of collateral from deposit have been deleted.8 Section 7 describes daily settlement procedures, which are subject to joint coordination and authorization. References to the CME acting as NYCC’s agent for purposes of authorizing fund transfers and other provisions relating to trilateral cross-margining have been deleted.9 The time at which the Clearing Organizations are to share position and other related information to the XM accounts has been advanced to 1 a.m. (Central Time) from 3 a.m. (Central Time).10 Section 8 concerns the suspension and liquidation of one or more XM clearing members. Section 8 has been modified to eliminate the loss or surplus sharing provisions that were effective in the event NYCC was a Carrying Clearing Organization in respect of an XM account, leaving in place terms that provide for equal loss or surplus sharing subject to the limitation that sharing in a surplus by a clearing organization for purposes of covering its other losses experienced is capped at an amount equal to such other losses.11 In addition, Section 8 has been amended to provide that OCC and CME would demand immediate payment of any letter of credit deposited as margin unless both agreed not to take such action. Provisions that permitted the clearing organizations to defer drawing on a letter of credit on receipt of satisfactory written assurances from the issuing bank extending its irrevocable commitment under the letter have been deleted in favor of the formulation described in the preceding sentence.12 7 Proposed No substantive changes have been made to Sections 9 through 12. Section 13 concerns the termination of the New Agreement. Provisions that specifically related to termination by NYCC have been deleted.13 Proposed Section 13, paragraph (d), which concerns the treatment of collateral deposited as margin on termination, has been modified to provide for the return of deposited MMF Shares to the depositing clearing member. No substantive changes have been made to Section 14. Section 15, which addresses information sharing, has been modified to reflect the OCC/ICE Clear XM Agreement other than as it relates to use of a recorded phone line for providing notices pursuant to Section 15.14 No substantive changes have been made to Sections 16 and 17. OCC states that any other changes made to the XM Agreement not specifically described above are not material in nature and therefore were not described in this narrative of the proposed rule change. In addition to Exhibit 5A, the following are attached as exhibits to the proposed rule change filing: Exhibit Name EXHIBIT 5B ...... Proprietary Cross-Margin Account Agreement and Security Agreement (Joint Clearing Member). Proprietary Cross-Margin Account Agreement and Security Agreement (Affiliated Clearing Members). Non-Proprietary CrossMargin Account Agreement and Security Agreement (Joint Clearing Member). Non-Proprietary CrossMargin Account Agreement and Security Agreement (Affiliated Clearing Members). Market Professional’s Agreement for CrossMargining (Joint Clearing Member). Market Professional’s Agreement for CrossMargining (Affiliated Clearing Members). EXHIBIT 5C ...... EXHIBIT 5D ...... EXHIBIT 5E ...... EXHIBIT 5F ...... EXHIBIT 5G ...... These forms of agreements have been slightly modified from the forms currently used in OCC/CME crossmargining. Modifications include: (i) Deleting provisions and terminology (e.g., ‘‘Carrying Clearing Organization’’) Section 6(a) and (b). 8 Id. Section 13(a), (b), and (c). Securities Exchange Act Release No. 57118 (Jan. 9, 2008), 73 FR 2970 (Jan. 16, 2008) (order approving the cross-margining agreement between OCC and ICE Clear U.S., Inc.). Section 7(a) and (b). Section 7(d). 11 Proposed Section 8(d) and (f). 12 Proposed Section 8(c). 16:49 Aug 06, 2008 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. 14 See 10 Proposed VerDate Aug<31>2005 that were applicable to trilateral crossmargining, (ii) reflecting the definition of ‘‘market professional’’ as used in the New Agreement, and (iii) eliminating the requirement that clearing members and market professionals furnish the clearing organizations with financing statements relating to positions, collateral and property maintained with respect to accounts subject to crossmargining. The adoption by all 50 states of revisions to Articles 8 and 9 of the Uniform Commercial Code (‘‘UCC’’) has eliminated the need to obtain financing statements that were required to perfect security interests in futures and options under earlier versions of those Articles. OCC states that the proposed rule change is consistent with the purposes and requirements of Section 17A of the Act 15 because it updates the (i) forms of collateral that are currently permitted to be deposited with respect to XM accounts under the OCC/CME crossmargining program to include MMF Shares, a form of collateral currently permitted by both clearing organizations to be deposited with respect to accounts other than cross-margin accounts; and (ii) documents used in connection with OCC/CME cross-margining. Crossmargining enhances the safety of the clearing system while providing lower clearing margin costs to participants. Expanding acceptable collateral for cross-margin accounts should encourage their use and is therefore beneficial to the clearing system and its participants. Updating the documents governing the OCC/CME cross-margining program provides greater clarity and certainty with respect to the program’s operation. Moreover, OCC states that the proposed rule change is not inconsistent with OCC’s by-laws and rules, including any proposed to be amended. 13 Proposed 9 Proposed Jkt 214001 PO 00000 Frm 00199 Fmt 4703 Sfmt 4703 46135 15 15 E:\FR\FM\07AUN1.SGM U.S.C. 78q–1. 07AUN1 46136 Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices III. Commission’s Findings and Order Granted Accelerated Approval of the Proposed Rule Change Section 17A(b)(3)(F) of the Act 16 requires the rules of a clearing agency to assure the safeguarding of securities and funds that are in the custody or control of the clearing agency or for which it is responsible. The Commission believes the proposal is consistent with this requirement because money market fund shares are already an acceptable form of margin asset that may be deposited at OCC and are subject to OCC’s prudent controls. Moreover, the use of money market fund shares for cross-margining purposes should further diversify the portfolio of assets that may be deposited to collateralize crossmargin accounts thereby enhancing OCC’s ability to access financial instruments that are relatively liquid and stable in value. Accordingly, the proposed rule change should not affect OCC’s ability to assure the safeguarding of securities and funds in its custody or control or for which it is responsible. Pursuant to section 19(b)(2) of the Act,17 OCC has requested the Commission to approve the proposed rule change prior to the thirtieth day after the date of publication of notice of the filing. The Commission finds good cause for approving because the new OCC/CME cross-margining program is based on and is substantially similar to other cross-margining programs that the Commission has approved and because such approval will allow OCC to implement the new program in late July pursuant to its implementation schedule. 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 16 15 sroberts on PROD1PC70 with NOTICES 17 15 U.S.C. 78q–1(b)(3)(F). U.S.C. 78s(b)(2). VerDate Aug<31>2005 16:49 Aug 06, 2008 Jkt 214001 • Send an e-mail to rulecomment@sec.gov. Please include File No. SR–OCC–2008–12 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File No. SR–OCC–2008–12. 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, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. to 3 p.m. 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. OCC–2008–12 and should be submitted on or before August 28, 2008. particular section 17A of the Act 18 and the rules and regulations thereunder. It is therefore ordered, pursuant to section 19(b)(2) of the Act,19 that the proposed rule change (SR–OCC–2008– 12) be, and it hereby is, approved on an accelerated basis.20 For the Commission by the Division of Trading and Markets, pursuant to delegated authority.21 Florence E. Harmon, Acting Secretary. [FR Doc. E8–18237 Filed 8–6–08; 8:45 am] BILLING CODE 8010–01–P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration Newark Liberty International Airport Slots; Request for Bids Federal Aviation Administration (FAA), DOT. ACTION: Notice of availability. AGENCY: SUMMARY: The FAA plans to auction a lease for a package of slots at Newark Liberty International Airport on September 3, 2008. If you are interested in participating in the auction, commenting on the planned auction procedures or draft lease terms, you will be able to find additional information and procedures for providing comments at https://faaco.faa.gov. FOR FURTHER INFORMATION CONTACT: Mr. Jeffrey Wharff, Federal Aviation Administration, Office of Aviation Policy and Plans, 800 Independence Avenue, SW., Washington, DC 20591; telephone: 202 267–3274; His e-mail is Jeffrey.Wharff@FAA.gov. Issued in Washington, DC, on August 5, 2008. Nan Shellabarger, Acting Deputy Assistant Administrator for Policy, Planning, and Environment. [FR Doc. E8–18356 Filed 8–6–08; 8:45 am] BILLING CODE 4910–13–P 18 15 V. Conclusion U.S.C. 78q–1. U.S.C. 19s(b)(2). 20 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). 21 17 CFR 200.30–3(a)(12). 19 15 On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act and in PO 00000 Frm 00200 Fmt 4703 Sfmt 4703 E:\FR\FM\07AUN1.SGM 07AUN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 73, Number 153 (Thursday, August 7, 2008)]
[Notices]
[Pages 46133-46136]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-18237]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58258; File No. SR-OCC-2008-12]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change Relating to Cross-Margining

July 30, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ notice is hereby given that on June 10, 2008, 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 primarily by 
OCC. The Commission is publishing this notice and order to solicit 
comments on the proposed rule change from interested persons and to 
grant accelerated approval of the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
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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 OCC Rule 705 to add shares of 
money market funds as a form of collateral that may be deposited and 
recognized with respect to cross-margin (``XM'') accounts. In addition, 
the proposed rule change revises the cross-

[[Page 46134]]

margining agreement between OCC and the Chicago Mercantile Exchange, 
Inc., (``CME'') to reflect the allowance of money market fund shares as 
acceptable collateral.

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

    OCC Rule 705 specifies the forms of collateral that may be 
deposited with respect to cross-margin (``XM'') accounts to meet 
required margin. Such forms of collateral currently include cash, 
government securities, government sponsored debt securities, letters of 
credit, and, if mutually acceptable to the XM clearing organizations, 
common stock. OCC staff regularly reviews these forms of collateral 
with an approach of determining a suitable balance between its clearing 
members' desire for a diverse combination of readily-available and 
cost-effective financial instruments and OCC's interest to access 
financial instruments that are relatively stable in value and easily 
converted to cash. Based on such a review, OCC is proposing to expand 
the forms of margin collateral acceptable for XM accounts to include 
shares in money market funds (``MMF Shares'').
    MMF Shares have been increasingly used to collateralize accounts at 
futures clearinghouses following the December 2000 amendments to 
Commodity Futures Trading Commission Regulation 1.25, which allow a 
futures commission merchant or a derivatives clearing organization to 
invest segregated funds in money market funds.\2\ OCC has accepted MMF 
Shares as collateral for several years.\3\ XM participants therefore 
desire to hypothecate shares in such funds as margin for their XM 
accounts as well.
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    \2\ Rules Relating to Intermediaries of Commodity Interest 
Transactions, 65 FR 77993 (Dec. 13, 2000). OCC estimates that MMF 
shares account for approximately 30% of the performance bond 
deposits at the two largest futures clearinghouses, CME and the New 
York Mercantile Exchange.
    \3\ Securities Exchange Act Release No. 47599 (Mar. 31, 2003), 
68 FR 16849 (Apr. 7, 2003).
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    Under the rule change, the underlying money market funds will be 
required to continuously meet the qualification standards of both OCC 
and the participating Commodity Clearing Organization (``CCO'') and 
will be valued at the lowest value given to MMF Shares under OCC's or 
the CCO's rules. Initially, OCC proposes to permit MMF Shares to be 
deposited as collateral in connection with its XM program with CME.\4\ 
Operationally, the shares will be transferred into an account held with 
the fund issuer that will be jointly controlled by OCC and CME for 
purposes of perfecting their security interest in deposited shares.
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    \4\ Presently, OCC maintains XM programs with the CME, The 
Clearing Corporation (``CCorp'') and ICE Clear U.S., Inc. (``ICE 
Clear''). However, there is currently no clearing member 
participating in the OCC/CCorp XM program. If that XM program 
becomes active again in the future and there is interest in MMF 
Shares as a form of margin collateral, OCC would then file with the 
Commission a proposed rule change to amend the OCC/CCorp XM 
agreement to include MMF Shares. OCC and ICE Clear have determined 
to defer including MMF Shares in their XM program until the clearing 
organizations have determined that there is clearing member interest 
in using such collateral. Because MMF Shares will not be an 
allowable form of collateral in all OCC XM programs, Rule 705 has 
been amended to provide that forms of margin collateral must be 
mutually acceptable to OCC and each participating CCO. This 
requirement is currently applied to deposits of common stock.
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    Clearing members will request the purchase of money market mutual 
fund shares from either OCC or CME. The shares will be jointly 
purchased by the clearinghouses using the funds of the requesting 
clearing member(s) that have been drafted from the bank account 
established in respect of the applicable cross-margining account (i.e., 
proprietary or segregated funds account). These shares will then be 
deposited in an account jointly controlled by OCC and the CME, and the 
clearing member(s) will receive margin credit for the collateral value 
less the applicable haircut of the shares purchased. Shares will be 
redeemed for cash from the fund issuer upon the instruction of either 
(i) the clearing member(s), with the proceeds being returned to the 
appropriate bank account, or (ii) the clearing organizations, upon the 
suspension of the clearing member(s) with proceeds being deposited into 
the appropriate liquidating settlement account for distribution in 
accordance with the XM agreement between OCC and CME.
    To permit the use of MMF Shares as a form of margin once all 
necessary regulatory approvals are obtained, OCC and CME have amended 
and restated their Cross-Margining Agreement (``Original Agreement''), 
which also has been updated to reflect the withdrawal in 2004 of the 
New York Clearing Corporation (``NYCC'') as a party thereto.\5\ With 
the elimination of NYCC as a party to the Original Agreement, the New 
Agreement accommodates the current OCC/CME bilateral cross-margining 
program but no longer provides for a trilateral cross-margining 
program. Other significant differences between the Original Agreement 
and the New Agreement are as follows.
---------------------------------------------------------------------------

    \5\ The Amended and Restated Cross-Margining Agreement (``New 
Agreement'') is attached to OCC's rule filing as Exhibit 5A. From 
1997 to 2004, NYCC (now known as ICE Clear, U.S., Inc.) participated 
in a trilateral XM program with OCC and CME. See Securities Exchange 
Act Release No. 38584 (May 8, 1997), 62 FR 26602 (May 14, 1997) 
(order approving a cross-margining agreement among OCC, CME, and the 
Commodity Clearing Corporation). The agreement governing this 
trilateral XM also sets forth the terms and conditions governing the 
current bilateral program between OCC and CME.
---------------------------------------------------------------------------

    Section 1 of the New Agreement contains definitional terms. Section 
1 has been modified to add a definitional term for MMF Shares (Section 
1(q)) and to revise other definitions to reflect the bilateral nature 
of the OCC/CME XM program. As defined, MMF Shares refer to shares in a 
money market fund that meet the requirements established under OCC's 
and CME's rules.\6\ References to NYCC have been eliminated from all 
the definition provisions and throughout the cross-margining agreement. 
The term ``Carrying Clearing Organization'' has been eliminated as 
unnecessary. The terms ``Pair of Non-Proprietary X-M Accounts'' and 
``Pair of X-M Accounts,'' respectively, have replaced the terms ``Sets 
of Non-Proprietary X-M Accounts'' and ``Sets of Proprietary X-M 
Accounts'' (Sections 1(s) and (w)) in order to reflect the bilateral 
nature of the OCC/CME XM program. Changes reflecting the deletion of 
the terms ``Carrying Clearing Organization,'' ``Sets of Non-Proprietary 
X-M Accounts,'' and ``Sets of Proprietary X-M Accounts'' have been made 
throughout the New Agreement. The definition of ``Market Professional'' 
(Section 1(p)) has been revised to eliminate references to NYFE 
members, which is the former name of the market for which NYCC provides 
clearing services. Other than referencing pairs of XM accounts, as 
applicable, no substantive changes have been made to Sections 2, 3, and 
4. Section 5, which relates to the calculation of margin, is also 
substantively unchanged other than

[[Page 46135]]

the deletion of an unnecessary provision regarding NYCC's election to 
use the margin calculation produced by the designated clearing 
organization's margin system.
---------------------------------------------------------------------------

    \6\ OCC's criteria for accepting deposits of MMF shares as 
margin are set forth in OCC Rule 604(b)(3). This rule, among other 
things, establishes concentration, control, and valuation standards 
governing money market fund shares.
---------------------------------------------------------------------------

    Section 6 relates to the forms and method of holding initial 
margin. As revised, Section 6 permits the deposit of MMF Shares as a 
form of initial margin and requires such shares to be held for the 
joint benefit of the clearing organizations on the books of the issuing 
fund or its agent or in such other manner as mutually agreed upon by 
the clearing organizations.\7\ Unnecessary references to the CME acting 
as NYCC's agent for the purpose of executing instructions to release 
forms of collateral from deposit have been deleted.\8\
---------------------------------------------------------------------------

    \7\ Proposed Section 6(a) and (b).
    \8\ Id.
---------------------------------------------------------------------------

    Section 7 describes daily settlement procedures, which are subject 
to joint coordination and authorization. References to the CME acting 
as NYCC's agent for purposes of authorizing fund transfers and other 
provisions relating to trilateral cross-margining have been deleted.\9\ 
The time at which the Clearing Organizations are to share position and 
other related information to the XM accounts has been advanced to 1 
a.m. (Central Time) from 3 a.m. (Central Time).\10\
---------------------------------------------------------------------------

    \9\ Proposed Section 7(a) and (b).
    \10\ Proposed Section 7(d).
---------------------------------------------------------------------------

    Section 8 concerns the suspension and liquidation of one or more XM 
clearing members. Section 8 has been modified to eliminate the loss or 
surplus sharing provisions that were effective in the event NYCC was a 
Carrying Clearing Organization in respect of an XM account, leaving in 
place terms that provide for equal loss or surplus sharing subject to 
the limitation that sharing in a surplus by a clearing organization for 
purposes of covering its other losses experienced is capped at an 
amount equal to such other losses.\11\ In addition, Section 8 has been 
amended to provide that OCC and CME would demand immediate payment of 
any letter of credit deposited as margin unless both agreed not to take 
such action. Provisions that permitted the clearing organizations to 
defer drawing on a letter of credit on receipt of satisfactory written 
assurances from the issuing bank extending its irrevocable commitment 
under the letter have been deleted in favor of the formulation 
described in the preceding sentence.\12\ No substantive changes have 
been made to Sections 9 through 12.
---------------------------------------------------------------------------

    \11\ Proposed Section 8(d) and (f).
    \12\ Proposed Section 8(c).
---------------------------------------------------------------------------

    Section 13 concerns the termination of the New Agreement. 
Provisions that specifically related to termination by NYCC have been 
deleted.\13\ Proposed Section 13, paragraph (d), which concerns the 
treatment of collateral deposited as margin on termination, has been 
modified to provide for the return of deposited MMF Shares to the 
depositing clearing member. No substantive changes have been made to 
Section 14. Section 15, which addresses information sharing, has been 
modified to reflect the OCC/ICE Clear XM Agreement other than as it 
relates to use of a recorded phone line for providing notices pursuant 
to Section 15.\14\ No substantive changes have been made to Sections 16 
and 17. OCC states that any other changes made to the XM Agreement not 
specifically described above are not material in nature and therefore 
were not described in this narrative of the proposed rule change.
---------------------------------------------------------------------------

    \13\ Proposed Section 13(a), (b), and (c).
    \14\ See Securities Exchange Act Release No. 57118 (Jan. 9, 
2008), 73 FR 2970 (Jan. 16, 2008) (order approving the cross-
margining agreement between OCC and ICE Clear U.S., Inc.).
---------------------------------------------------------------------------

    In addition to Exhibit 5A, the following are attached as exhibits 
to the proposed rule change filing:

------------------------------------------------------------------------
                Exhibit                               Name
------------------------------------------------------------------------
EXHIBIT 5B............................  Proprietary Cross-Margin Account
                                         Agreement and Security
                                         Agreement (Joint Clearing
                                         Member).
EXHIBIT 5C............................  Proprietary Cross-Margin Account
                                         Agreement and Security
                                         Agreement (Affiliated Clearing
                                         Members).
EXHIBIT 5D............................  Non-Proprietary Cross-Margin
                                         Account Agreement and Security
                                         Agreement (Joint Clearing
                                         Member).
EXHIBIT 5E............................  Non-Proprietary Cross-Margin
                                         Account Agreement and Security
                                         Agreement (Affiliated Clearing
                                         Members).
EXHIBIT 5F............................  Market Professional's Agreement
                                         for Cross-Margining (Joint
                                         Clearing Member).
EXHIBIT 5G............................  Market Professional's Agreement
                                         for Cross-Margining (Affiliated
                                         Clearing Members).
------------------------------------------------------------------------

    These forms of agreements have been slightly modified from the 
forms currently used in OCC/CME cross-margining. Modifications include: 
(i) Deleting provisions and terminology (e.g., ``Carrying Clearing 
Organization'') that were applicable to trilateral cross-margining, 
(ii) reflecting the definition of ``market professional'' as used in 
the New Agreement, and (iii) eliminating the requirement that clearing 
members and market professionals furnish the clearing organizations 
with financing statements relating to positions, collateral and 
property maintained with respect to accounts subject to cross-
margining. The adoption by all 50 states of revisions to Articles 8 and 
9 of the Uniform Commercial Code (``UCC'') has eliminated the need to 
obtain financing statements that were required to perfect security 
interests in futures and options under earlier versions of those 
Articles.
    OCC states that the proposed rule change is consistent with the 
purposes and requirements of Section 17A of the Act \15\ because it 
updates the (i) forms of collateral that are currently permitted to be 
deposited with respect to XM accounts under the OCC/CME cross-margining 
program to include MMF Shares, a form of collateral currently permitted 
by both clearing organizations to be deposited with respect to accounts 
other than cross-margin accounts; and (ii) documents used in connection 
with OCC/CME cross-margining. Cross-margining enhances the safety of 
the clearing system while providing lower clearing margin costs to 
participants. Expanding acceptable collateral for cross-margin accounts 
should encourage their use and is therefore beneficial to the clearing 
system and its participants. Updating the documents governing the OCC/
CME cross-margining program provides greater clarity and certainty with 
respect to the program's operation. Moreover, OCC states that the 
proposed rule change is not inconsistent with OCC's by-laws and rules, 
including any proposed to be amended.
---------------------------------------------------------------------------

    \15\ 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.

[[Page 46136]]

III. Commission's Findings and Order Granted Accelerated Approval of 
the Proposed Rule Change

    Section 17A(b)(3)(F) of the Act \16\ requires the rules of a 
clearing agency to assure the safeguarding of securities and funds that 
are in the custody or control of the clearing agency or for which it is 
responsible. The Commission believes the proposal is consistent with 
this requirement because money market fund shares are already an 
acceptable form of margin asset that may be deposited at OCC and are 
subject to OCC's prudent controls. Moreover, the use of money market 
fund shares for cross-margining purposes should further diversify the 
portfolio of assets that may be deposited to collateralize cross-margin 
accounts thereby enhancing OCC's ability to access financial 
instruments that are relatively liquid and stable in value. 
Accordingly, the proposed rule change should not affect OCC's ability 
to assure the safeguarding of securities and funds in its custody or 
control or for which it is responsible.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Pursuant to section 19(b)(2) of the Act,\17\ OCC has requested the 
Commission to approve the proposed rule change prior to the thirtieth 
day after the date of publication of notice of the filing. The 
Commission finds good cause for approving because the new OCC/CME 
cross-margining program is based on and is substantially similar to 
other cross-margining programs that the Commission has approved and 
because such approval will allow OCC to implement the new program in 
late July pursuant to its implementation schedule.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

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-comment@sec.gov. Please include 
File No. SR-OCC-2008-12 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File No. SR-OCC-2008-12. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. to 3 p.m. 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. OCC-
2008-12 and should be submitted on or before August 28, 2008.

V. 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 \18\ and the rules and regulations 
thereunder.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-OCC-2008-12) be, and it 
hereby is, approved on an accelerated basis.\20\
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 19s(b)(2).
    \20\ 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).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-18237 Filed 8-6-08; 8:45 am]
BILLING CODE 8010-01-P

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