Self-Regulatory Organizations; Options Clearing Corporation; Notice of Filing of Proposed Rule Change To Provide Flexibility to the Options Clearing Corporation With Respect to Its Obligations To Pay Settlement Amounts to Clearing Members Generally as Well as in Emergency Situations, 27697-27698 [2011-11623]
Download as PDF
Federal Register / Vol. 76, No. 92 / Thursday, May 12, 2011 / 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 Web site viewing and
printing 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
will also 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
available publicly. All submissions
should refer to File No. SR–BYX–2011–
008 and should be submitted on or
before June 2, 2011.
notice is hereby given that on April 28,
2011, 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 to solicit comments on the
proposed rule change from interested
persons.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Elizabeth M. Murphy,
Secretary.
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
The purpose of this rule change is to
revise OCC’s By-Laws and Rules to
provide flexibility to OCC with respect
to its obligations to pay settlement
amounts to clearing members generally
as well as in emergency situations. The
proposed rule amendments would
change the current daily deadline for
OCC to pay settlement amounts to
clearing members from 10 a.m. to 1 p.m.
(All times referred to in this filing are
Central Time). In addition, in the event
that an emergency condition exists, the
Board of Directors (‘‘Board’’) or an
authorized executive officer of OCC
would be authorized to extend OCC’s
obligation to pay settlement amounts to
clearing members beyond the 1 p.m.
deadline.
Currently, each business day morning,
OCC is obligated to collect cash owed by
its clearing members for the prior day’s
settlement activity by 9 a.m. OCC, in
turn, is obligated to pay cash owed to
[FR Doc. 2011–11624 Filed 5–11–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
wwoods2 on DSK1DXX6B1PROD with NOTICES_PART 1
[Release No. 34–64436; File No. SR–OCC–
2011–05]
Self-Regulatory Organizations;
Options Clearing Corporation; Notice
of Filing of Proposed Rule Change To
Provide Flexibility to the Options
Clearing Corporation With Respect to
Its Obligations To Pay Settlement
Amounts to Clearing Members
Generally as Well as in Emergency
Situations
May 6, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder 2
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The purpose of the proposed rule
change is to provide flexibility to OCC
with respect to its obligations to pay
settlement amounts to clearing members
generally as well as in emergency
situations.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
OCC included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. OCC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.3
11 17
1 15
VerDate Mar<15>2010
14:49 May 11, 2011
3 The Commission has modified the text of the
summaries prepared by OCC.
Jkt 223001
PO 00000
Frm 00065
Fmt 4703
Sfmt 4703
27697
its clearing members for the prior day’s
settlement activity by 10 a.m. This onehour window is designed to ensure that
OCC has collected all required
settlement funds before having to
disburse any settlement funds to its
clearing members. Daily settlement
activity includes obligations relating to:
(1) The net premium payments arising
from the prior day’s option purchases
and sales, (2) the mark-to-market of
futures contracts and stock loan
positions, and (3) exercises and
assignments of cash-settled option
contracts.
OCC’s settlement banks routinely
approve and are required to honor the
associated settlements made by OCC
and OCC’s clearing members within
these time frames. On most business
days, the entire bank approval process,
which irrevocably obligates each
settlement bank to make settlement, is
completed by 8:30 a.m.
Under OCC’s rules, a failure by OCC
to pay its daily settlement obligations to
clearing members by 10 a.m. constitutes
a default. During discussions amongst
OCC’s senior management of various
potential extreme default and liquidity
squeeze scenarios, including the
possible default of one of OCC’s largest
clearing members, OCC analyzed the
risk associated with not being able to
immediately access liquidity resources
in time to meet the 10 a.m. deadline for
OCC to pay settlement amounts to
clearing members. The deadline may be
difficult to meet if, for example, OCC
learned of a default near the 9 a.m.
deadline. In such a circumstance, OCC
would have only one hour or less
(considering the time needed to process
and communicate information) to access
the funds necessary to meet the 10 a.m.
deadline.
OCC’s immediate liquidity resources
rely heavily upon its $2.0 billion
revolving credit facility (backed by
Treasuries held in the clearing fund). A
one-hour advance notice is required
prior to OCC drawing funds from the
credit facility. Beyond the credit facility,
it would likely take more than one hour
to raise cash by borrowing against the
remaining clearing fund Treasuries (i.e.,
those Treasuries not securing the credit
facility) either through tri-party
repurchase agreements or a traditional
bank loan.
The main benefit of moving the
deadline to 1 p.m. for OCC to pay
clearing members settlement amounts is
that it allows up to four hours (rather
than one) within which OCC can meet
its daily settlement requirement without
being required to declare an emergency
in order to do so. In addition, based on
discussions with its settlement banks,
E:\FR\FM\12MYN1.SGM
12MYN1
wwoods2 on DSK1DXX6B1PROD with NOTICES_PART 1
27698
Federal Register / Vol. 76, No. 92 / Thursday, May 12, 2011 / Notices
OCC believes that notwithstanding a
change in the current 10 a.m. deadline
to 1 p.m., the settlement banks will
continue the current practice of
approving settlements as soon as they
can make a credit determination (i.e.,
confirm present funds or extend credit
to the customer) and process OCC’s
payment requests, which are tasks that
are typically completed by 8:30 a.m.
OCC also has incorporated in its rules
the authority to extend the deadline for
it to pay settlement amounts to clearing
members to the close of the Federal
Reserve Banks’ Fedwire Funds Service
on a settlement day, if necessary, during
an emergency situation.4 Such an
extension is consistent with the
emergency authority other
clearinghouses have to deal with late
settlement scenarios. The rule
amendments would authorize the
Board, Chairman of the Board,
Management Vice Chairman, or
President of OCC to delay settlement
beyond 1 p.m. in emergency situations.
The rule amendments would authorize
the named officers to take such action
because the decision may need to be
made under time constraints where the
Board (or even the Membership/Risk
Committee) could not be convened in
time to take the necessary action.5 OCC
anticipates that the emergency authority
would be used infrequently, if ever.
Under proposed Rule 505, such
authority could only be used upon a
determination by the Board or an
authorized officer that extension of the
settlement time is necessary or
advisable for the protection of OCC or
otherwise in the public interest. In the
event that the emergency authority is
exercised, a number of protections are
built into the process. For example, the
determination and the reasons for the
extension will be promptly reported to
the Commission, the Commodities
Futures Trading Commission, and any
other regulatory or supervisory
authorities having jurisdiction over
OCC. In addition, the clearing members
will be notified of the extension, and a
report outlining the emergency actions
will be maintained in OCC’s records.
For drafting clarity and economy, the
specific settlement times have been
removed from the applicable rules, a
new definition of ‘‘settlement day’’ has
4 In
the event that OCC is unable to pay
settlement amounts to clearing members by the
close of the Fedwire Funds Service on a settlement
day due to an emergency or force majeure
condition, OCC will seek appropriate relief from the
regulatory or supervisory authorities having
jurisdiction over OCC.
5 Similar authority is provided to the OCC
Chairman (or the Board) to summarily suspend a
clearing member. See OCC Rule 1102.
VerDate Mar<15>2010
14:49 May 11, 2011
Jkt 223001
been created, and a revised definition of
‘‘settlement time’’ has been inserted in
Article I of the By-Laws.
OCC believes the proposed rule
changes are consistent with the
requirements of Section 17A of the Act 6
and the rules and regulations
thereunder applicable to OCC because
the rule amendments are designed to
promote the prompt and accurate
clearance and settlement of security
transactions and to generally protect
investors and the public interest by
giving OCC flexibility to make
settlement payments to its clearing
members in a timely manner during
normal and abnormal market
conditions. 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
Written comments relating to the
proposed rule change have not been
solicited or received. OCC will notify
the Commission of any written
comments received by OCC.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change; or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
6 15
PO 00000
U.S.C. 78q–1.
Frm 00066
Fmt 4703
Electronic Comments
• Use the Commissions Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–OCC–2011–05 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–OCC–2011–05. 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 Web site viewing and
printing in the Commission’s Public
Reference Section, 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 filings
will also be available for inspection and
copying at the principal office of OCC
and on OCC’s Web site at https://
www.optionsclearing.com/components/
docs/legal/rules_and_bylaws/
sr_occ_11_05.pdf.
All comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–OCC–2011–05 and should
be submitted on or before June 2, 2011.
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.7
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–11623 Filed 5–11–11; 8:45 am]
BILLING CODE 8011–01–P
7 17
Sfmt 9990
CFR 200.30–3(a)(12).
E:\FR\FM\12MYN1.SGM
12MYN1
Agencies
[Federal Register Volume 76, Number 92 (Thursday, May 12, 2011)]
[Notices]
[Pages 27697-27698]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11623]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64436; File No. SR-OCC-2011-05]
Self-Regulatory Organizations; Options Clearing Corporation;
Notice of Filing of Proposed Rule Change To Provide Flexibility to the
Options Clearing Corporation With Respect to Its Obligations To Pay
Settlement Amounts to Clearing Members Generally as Well as in
Emergency Situations
May 6, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder \2\ notice is hereby given that
on April 28, 2011, 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 to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The purpose of the proposed rule change is to provide flexibility
to OCC with respect to its obligations to pay settlement amounts to
clearing members generally as well as in emergency situations.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. OCC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements.\3\
---------------------------------------------------------------------------
\3\ The Commission has modified the text of the summaries
prepared by OCC.
---------------------------------------------------------------------------
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The purpose of this rule change is to revise OCC's By-Laws and
Rules to provide flexibility to OCC with respect to its obligations to
pay settlement amounts to clearing members generally as well as in
emergency situations. The proposed rule amendments would change the
current daily deadline for OCC to pay settlement amounts to clearing
members from 10 a.m. to 1 p.m. (All times referred to in this filing
are Central Time). In addition, in the event that an emergency
condition exists, the Board of Directors (``Board'') or an authorized
executive officer of OCC would be authorized to extend OCC's obligation
to pay settlement amounts to clearing members beyond the 1 p.m.
deadline.
Currently, each business day morning, OCC is obligated to collect
cash owed by its clearing members for the prior day's settlement
activity by 9 a.m. OCC, in turn, is obligated to pay cash owed to its
clearing members for the prior day's settlement activity by 10 a.m.
This one-hour window is designed to ensure that OCC has collected all
required settlement funds before having to disburse any settlement
funds to its clearing members. Daily settlement activity includes
obligations relating to: (1) The net premium payments arising from the
prior day's option purchases and sales, (2) the mark-to-market of
futures contracts and stock loan positions, and (3) exercises and
assignments of cash-settled option contracts.
OCC's settlement banks routinely approve and are required to honor
the associated settlements made by OCC and OCC's clearing members
within these time frames. On most business days, the entire bank
approval process, which irrevocably obligates each settlement bank to
make settlement, is completed by 8:30 a.m.
Under OCC's rules, a failure by OCC to pay its daily settlement
obligations to clearing members by 10 a.m. constitutes a default.
During discussions amongst OCC's senior management of various potential
extreme default and liquidity squeeze scenarios, including the possible
default of one of OCC's largest clearing members, OCC analyzed the risk
associated with not being able to immediately access liquidity
resources in time to meet the 10 a.m. deadline for OCC to pay
settlement amounts to clearing members. The deadline may be difficult
to meet if, for example, OCC learned of a default near the 9 a.m.
deadline. In such a circumstance, OCC would have only one hour or less
(considering the time needed to process and communicate information) to
access the funds necessary to meet the 10 a.m. deadline.
OCC's immediate liquidity resources rely heavily upon its $2.0
billion revolving credit facility (backed by Treasuries held in the
clearing fund). A one-hour advance notice is required prior to OCC
drawing funds from the credit facility. Beyond the credit facility, it
would likely take more than one hour to raise cash by borrowing against
the remaining clearing fund Treasuries (i.e., those Treasuries not
securing the credit facility) either through tri-party repurchase
agreements or a traditional bank loan.
The main benefit of moving the deadline to 1 p.m. for OCC to pay
clearing members settlement amounts is that it allows up to four hours
(rather than one) within which OCC can meet its daily settlement
requirement without being required to declare an emergency in order to
do so. In addition, based on discussions with its settlement banks,
[[Page 27698]]
OCC believes that notwithstanding a change in the current 10 a.m.
deadline to 1 p.m., the settlement banks will continue the current
practice of approving settlements as soon as they can make a credit
determination (i.e., confirm present funds or extend credit to the
customer) and process OCC's payment requests, which are tasks that are
typically completed by 8:30 a.m.
OCC also has incorporated in its rules the authority to extend the
deadline for it to pay settlement amounts to clearing members to the
close of the Federal Reserve Banks' Fedwire Funds Service on a
settlement day, if necessary, during an emergency situation.\4\ Such an
extension is consistent with the emergency authority other
clearinghouses have to deal with late settlement scenarios. The rule
amendments would authorize the Board, Chairman of the Board, Management
Vice Chairman, or President of OCC to delay settlement beyond 1 p.m. in
emergency situations. The rule amendments would authorize the named
officers to take such action because the decision may need to be made
under time constraints where the Board (or even the Membership/Risk
Committee) could not be convened in time to take the necessary
action.\5\ OCC anticipates that the emergency authority would be used
infrequently, if ever. Under proposed Rule 505, such authority could
only be used upon a determination by the Board or an authorized officer
that extension of the settlement time is necessary or advisable for the
protection of OCC or otherwise in the public interest. In the event
that the emergency authority is exercised, a number of protections are
built into the process. For example, the determination and the reasons
for the extension will be promptly reported to the Commission, the
Commodities Futures Trading Commission, and any other regulatory or
supervisory authorities having jurisdiction over OCC. In addition, the
clearing members will be notified of the extension, and a report
outlining the emergency actions will be maintained in OCC's records.
---------------------------------------------------------------------------
\4\ In the event that OCC is unable to pay settlement amounts to
clearing members by the close of the Fedwire Funds Service on a
settlement day due to an emergency or force majeure condition, OCC
will seek appropriate relief from the regulatory or supervisory
authorities having jurisdiction over OCC.
\5\ Similar authority is provided to the OCC Chairman (or the
Board) to summarily suspend a clearing member. See OCC Rule 1102.
---------------------------------------------------------------------------
For drafting clarity and economy, the specific settlement times
have been removed from the applicable rules, a new definition of
``settlement day'' has been created, and a revised definition of
``settlement time'' has been inserted in Article I of the By-Laws.
OCC believes the proposed rule changes are consistent with the
requirements of Section 17A of the Act \6\ and the rules and
regulations thereunder applicable to OCC because the rule amendments
are designed to promote the prompt and accurate clearance and
settlement of security transactions and to generally protect investors
and the public interest by giving OCC flexibility to make settlement
payments to its clearing members in a timely manner during normal and
abnormal market conditions. The proposed rule change is not
inconsistent with the existing rules of OCC, including any other rules
proposed to be amended.
---------------------------------------------------------------------------
\6\ 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 relating to the proposed rule change have not been
solicited or received. OCC will notify the Commission of any written
comments received by OCC.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change; or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commissions Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include File Number
SR-OCC-2011-05 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2011-05. 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 Web site viewing and
printing in the Commission's Public Reference Section, 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 filings will also be available for
inspection and copying at the principal office of OCC and on OCC's Web
site at https://www.optionsclearing.com/components/docs/legal/rules_and_bylaws/sr_occ_11_05.pdf.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-OCC-2011-05
and should be submitted on or before June 2, 2011.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\7\
---------------------------------------------------------------------------
\7\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11623 Filed 5-11-11; 8:45 am]
BILLING CODE 8011-01-P