Self-Regulatory Organizations; Options Clearing Corporation; Order Approving Proposed Rule Change Relating to Management of Liquidity Risk, 78059-78060 [2011-32142]
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Federal Register / Vol. 76, No. 241 / Thursday, December 15, 2011 / Notices
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
also will be available for inspection and
copying at the principal office of
NASDAQ. 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–
NASDAQ–2011–171 and should be
submitted on or before January 5, 2012.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Kevin M. O’Neill,
Deputy Secretary.
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2011–171 on the
subject line.
mstockstill on DSK4VPTVN1PROD with NOTICES
2011.11 The Exchange, however, will
not be ready to implement the new
order type until February 2012. The
Commission believes that waiving the
30-day operative delay is consistent
with the protection of investors and the
public interest, because it will allow the
Exchange to immediately delay the
implementation of Post-Only orders,
preventing a gap between when the new
order type is operative under the rules
and when the new order type will be
implemented and available for use in
February 2012. For these reasons, the
Commission designates that the
proposed rule change become operative
immediately upon filing.12
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend 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.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549.
All submissions should refer to File
Number SR–NASDAQ–2011–171. This
file number should be included on the
subject line if email 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
11 See
supra note 3.
purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
12 For
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16:49 Dec 14, 2011
Jkt 226001
[FR Doc. 2011–32143 Filed 12–14–11; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–65927; File No. SR–OCC–
2011–15]
Self-Regulatory Organizations;
Options Clearing Corporation; Order
Approving Proposed Rule Change
Relating to Management of Liquidity
Risk
December 9, 2011.
I. Introduction
On October 12, 2011, the Options
Clearing Corporation (‘‘OCC’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change SR–OCC–2011–15
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder.2
The proposed rule change was
published for comment in the Federal
Register on November 1, 2011.3 The
Commission received no comment
letters on the proposed rule change.
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 65622
(October 28, 2011), 76 FR 67523.
1 15
PO 00000
Frm 00097
Fmt 4703
Sfmt 4703
78059
This order approves the proposed rule
change.
II. Description
The purpose of the proposed rule
change is to amend OCC’s by-laws and
rules to clarify OCC’s authority to use,
and the manner in which OCC may use,
a defaulting clearing member’s margin
deposits and contributions to the
clearing fund and all other clearing
members’ clearing fund contributions 4
to obtain temporary liquidity for
purposes of meeting liquidity needs
arising from Default Obligations.5
An essential element of OCC’s risk
management regime is sound
management of liquidity risk. OCC
regularly examines its liquidity risk
exposure to determine the optimal
amount and form of available liquidity.
OCC’s largest potential liquidity needs
are projected to occur in the case of a
clearing member’s default where OCC
would be obligated to settle the
defaulting clearing member’s payment
obligations with respect to option
premiums, settlement of cash-settled
option exercises, and mark-to-market
payments. These are obligations that
OCC must fund on time and potentially
with only a few hours of advance
notice—from notice of default until the
payments are due.
One of the resources that OCC may
use to meet its liquidity needs is its
existing committed credit facility. The
amount of funds available to OCC under
the committed credit facility is limited
not only by the overall size of the
facility, but also by the amount of assets
that OCC can pledge as collateral to
lenders supporting the facility. OCC
believes that, in addition to the
authority it already has to pledge
clearing fund assets to secure a loan to
cover Default Obligations, it should also
have the express power to pledge a
suspended clearing member’s margin
deposits to secure loans for the purpose
of meeting obligations arising out of the
default and suspension of that clearing
member or any action taken by OCC in
connection therewith. OCC clearly has
authority to pledge a suspended clearing
member’s clearing fund deposits for that
4 Margin deposits secure only the depositing
clearing member’s own obligations to OCC whereas
clearing fund deposits of all clearing members may
be applied by OCC not only to losses arising from
the depositing clearing member’s default, but also
to losses resulting from defaults by other clearing
members and specified other third parties such as
settlement banks and other clearing organizations.
See generally Article VIII, Sections 1 and 5 of OCC’s
by-laws and Rule 604 of OCC’s rules.
5 The specific language of the proposed changes
can be found at https://www.optionsclearing.com/
components/docs/legal/rules_and_bylaws/
sr_occ_11_15.pdf.
E:\FR\FM\15DEN1.SGM
15DEN1
mstockstill on DSK4VPTVN1PROD with NOTICES
78060
Federal Register / Vol. 76, No. 241 / Thursday, December 15, 2011 / Notices
purpose under Article VIII, Section 5(e)
of the by-laws. OCC believes that it is
not as clear that it has authority to
pledge a suspended clearing member’s
margin deposits. Rule 1104(a) provides,
among other things, that upon the
suspension of a clearing member, OCC
shall promptly ‘‘convert to cash,’’ in the
most orderly manner practicable, all of
the clearing member’s margin deposits.
Although this mandate might be
construed to include the authority to
pledge margin assets as collateral for
borrowings under the committed credit
facility, the phrase ‘‘convert to cash’’
has generally been used in the by-laws
as synonymous with ‘‘liquidate’’ to refer
to a final disposition of an asset. And
even if OCC does have implied
authority to pledge margin assets, that
may not be transparent to all clearing
members because it is not expressly
stated in the rule. In order to eliminate
any ambiguity, OCC proposed to (i)
Amend Rule 1104 and Rule 1106 to
replace the phrases ‘‘convert to cash,’’ ’’
conversion to cash’’ and ‘‘converted to
cash’’ with the words ‘‘liquidate,’’
‘‘liquidation’’ and ‘‘liquidated,’’
respectively; and (ii) amend Rule
1104(b) to expressly give OCC the power
to pledge a suspended clearing
member’s margin deposits as security
for loans if designated executive officers
of OCC determine that immediate
liquidation of such assets for cash under
then-existing circumstances would not
be in the best interests of OCC, other
clearing members, or the general public.
While OCC’s $2 billion committed
credit facility should normally be more
than sufficient to meet OCC’s liquidity
needs, it is nevertheless possible that
OCC could encounter a liquidity
demand that exceeds the size of that
facility. Moreover, it could be difficult
to maintain the size of the facility under
unfavorable market conditions (i.e., if
the credit markets tighten significantly).
In addition, future regulatory
requirements for clearinghouses could
impose liquidity requirements that
would be difficult to meet with a
committed credit facility alone. In order
to be better prepared to deal with such
situations, OCC believes that it is
necessary to actively explore a variety of
means for raising and maintaining
liquidity resources, including
participation in securities lending or triparty repo markets. Therefore, OCC
proposed to amend both Article VIII,
Section 5(e) of the by-laws and Rule
1104(b) to clarify that OCC’s authority to
use a suspended clearing member’s
margin and clearing fund deposits and
other clearing members’ clearing fund
deposits to obtain temporary liquidity
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16:49 Dec 14, 2011
Jkt 226001
for purposes of meeting Default
Obligations is not limited to pledging
such assets under the committed credit
facility. Rather, OCC would have
express authority to use such assets to
obtain liquidity through any reasonable
means as determined by designated
executive officers of OCC in their
discretion. The addition of the language
‘‘or otherwise obtain’’ in Article VIII,
Section 5(e) of the by-laws reflects that
certain transactions by which OCC may
obtain liquidity could be characterized
as something other than a transaction in
which funds are ‘‘borrowed.’’ For
example, in a Master Repurchase
Agreement, the Agreement states that
the parties’ intent is for the transactions
to be ‘‘sales’’ and ‘‘purchases,’’ but also
contains provisions if such transactions
are deemed to be loans. Accordingly,
the use of ‘‘or otherwise obtain’’ in the
phrase ‘‘borrow or otherwise obtain’’
addresses the possibility that the
transaction by which OCC obtains funds
may not be deemed to be a ‘‘borrowing’’
and forestalls technical arguments that
it would be necessary for the transaction
to be a ‘‘loan’’ in order for OCC to
borrow funds.
III. Discussion
Section 17A(b)(3)(F) of the Act
requires that the rules of a registered
clearing agency be designed to promote
the prompt and accurate clearance and
settlement of securities transactions and
to assure the safeguarding of securities
and funds which are in the custody or
control of the clearing agency or for
which it is responsible.6 The proposed
rule change is designed to clarify OCC’s
authority to take action following a
clearing member default in order to
facilitate the settlement of the defaulting
clearing member’s payment obligations
with respect to option premiums,
settlement of cash-settled option
exercises, and mark-to-market
payments. The Commission believes
that the express authority to obtain
funds based on a suspended member’s
clearing fund deposits and margin
deposits may facilitate OCC’s ability to
obtain the liquidity it needs to promote
the prompt and accurate clearance and
settlement of securities transactions and
to assure the safeguarding of securities
and funds which are in the custody or
control or for which OCC is responsible.
U.S.C. 78a–1(b)(3)(F).
Frm 00098
Fmt 4703
[FR Doc. 2011–32142 Filed 12–14–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65934; File No. SR–Phlx–
2011–170]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing of Proposed Rule Change to
Request Permanent Approval of the
Pilot Program to Permit NASDAQ OMX
PSX to Accept Inbound Orders that
Nasdaq Execution Services, LLC
Routes in its Capacity as a Facility of
The NASDAQ Stock Market LLC
December 9, 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 December
1, 2011, NASDAQ OMX PHLX LLC
(‘‘Phlx’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (q‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Phlx is filing this proposed rule
change to request permanent approval
of the Exchange’s pilot program to
permit the Exchange’s NASDAQ OMX
PSX system (‘‘PSX’’) to accept inbound
orders that Nasdaq Execution Services,
LLC (‘‘NES’’) routes in its capacity as a
facility of The NASDAQ Stock Market
U.S.C. 78q–1.
U.S.C. 78s(b)(2).
9 In approving this proposed rule change the
Commission has considered the proposed rule’s
impact of efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
10 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
8 15
On the basis of the foregoing, the
Commission finds that the proposal is
consistent with the requirements of the
Act and in particular with the
PO 00000
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.10
Kevin M. O’Neill,
Deputy Secretary.
7 15
IV. Conclusion
6 15
requirements of Section 17A of the Act 7
and the rules and regulations
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,8 that the
proposed rule change (File No. SR–
OCC–2011–15) be, and hereby is,
approved.9
Sfmt 4703
E:\FR\FM\15DEN1.SGM
15DEN1
Agencies
[Federal Register Volume 76, Number 241 (Thursday, December 15, 2011)]
[Notices]
[Pages 78059-78060]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-32142]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65927; File No. SR-OCC-2011-15]
Self-Regulatory Organizations; Options Clearing Corporation;
Order Approving Proposed Rule Change Relating to Management of
Liquidity Risk
December 9, 2011.
I. Introduction
On October 12, 2011, the Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-OCC-2011-15 pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder.\2\ The proposed rule change was published for comment in
the Federal Register on November 1, 2011.\3\ The Commission received no
comment letters on the proposed rule change. This order approves the
proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 65622 (October 28,
2011), 76 FR 67523.
---------------------------------------------------------------------------
II. Description
The purpose of the proposed rule change is to amend OCC's by-laws
and rules to clarify OCC's authority to use, and the manner in which
OCC may use, a defaulting clearing member's margin deposits and
contributions to the clearing fund and all other clearing members'
clearing fund contributions \4\ to obtain temporary liquidity for
purposes of meeting liquidity needs arising from Default
Obligations.\5\
---------------------------------------------------------------------------
\4\ Margin deposits secure only the depositing clearing member's
own obligations to OCC whereas clearing fund deposits of all
clearing members may be applied by OCC not only to losses arising
from the depositing clearing member's default, but also to losses
resulting from defaults by other clearing members and specified
other third parties such as settlement banks and other clearing
organizations. See generally Article VIII, Sections 1 and 5 of OCC's
by-laws and Rule 604 of OCC's rules.
\5\ The specific language of the proposed changes can be found
at https://www.optionsclearing.com/components/docs/legal/rules_and_bylaws/sr_occ_11_15.pdf.
---------------------------------------------------------------------------
An essential element of OCC's risk management regime is sound
management of liquidity risk. OCC regularly examines its liquidity risk
exposure to determine the optimal amount and form of available
liquidity. OCC's largest potential liquidity needs are projected to
occur in the case of a clearing member's default where OCC would be
obligated to settle the defaulting clearing member's payment
obligations with respect to option premiums, settlement of cash-settled
option exercises, and mark-to-market payments. These are obligations
that OCC must fund on time and potentially with only a few hours of
advance notice--from notice of default until the payments are due.
One of the resources that OCC may use to meet its liquidity needs
is its existing committed credit facility. The amount of funds
available to OCC under the committed credit facility is limited not
only by the overall size of the facility, but also by the amount of
assets that OCC can pledge as collateral to lenders supporting the
facility. OCC believes that, in addition to the authority it already
has to pledge clearing fund assets to secure a loan to cover Default
Obligations, it should also have the express power to pledge a
suspended clearing member's margin deposits to secure loans for the
purpose of meeting obligations arising out of the default and
suspension of that clearing member or any action taken by OCC in
connection therewith. OCC clearly has authority to pledge a suspended
clearing member's clearing fund deposits for that
[[Page 78060]]
purpose under Article VIII, Section 5(e) of the by-laws. OCC believes
that it is not as clear that it has authority to pledge a suspended
clearing member's margin deposits. Rule 1104(a) provides, among other
things, that upon the suspension of a clearing member, OCC shall
promptly ``convert to cash,'' in the most orderly manner practicable,
all of the clearing member's margin deposits. Although this mandate
might be construed to include the authority to pledge margin assets as
collateral for borrowings under the committed credit facility, the
phrase ``convert to cash'' has generally been used in the by-laws as
synonymous with ``liquidate'' to refer to a final disposition of an
asset. And even if OCC does have implied authority to pledge margin
assets, that may not be transparent to all clearing members because it
is not expressly stated in the rule. In order to eliminate any
ambiguity, OCC proposed to (i) Amend Rule 1104 and Rule 1106 to replace
the phrases ``convert to cash,'' '' conversion to cash'' and
``converted to cash'' with the words ``liquidate,'' ``liquidation'' and
``liquidated,'' respectively; and (ii) amend Rule 1104(b) to expressly
give OCC the power to pledge a suspended clearing member's margin
deposits as security for loans if designated executive officers of OCC
determine that immediate liquidation of such assets for cash under
then-existing circumstances would not be in the best interests of OCC,
other clearing members, or the general public.
While OCC's $2 billion committed credit facility should normally be
more than sufficient to meet OCC's liquidity needs, it is nevertheless
possible that OCC could encounter a liquidity demand that exceeds the
size of that facility. Moreover, it could be difficult to maintain the
size of the facility under unfavorable market conditions (i.e., if the
credit markets tighten significantly). In addition, future regulatory
requirements for clearinghouses could impose liquidity requirements
that would be difficult to meet with a committed credit facility alone.
In order to be better prepared to deal with such situations, OCC
believes that it is necessary to actively explore a variety of means
for raising and maintaining liquidity resources, including
participation in securities lending or tri-party repo markets.
Therefore, OCC proposed to amend both Article VIII, Section 5(e) of the
by-laws and Rule 1104(b) to clarify that OCC's authority to use a
suspended clearing member's margin and clearing fund deposits and other
clearing members' clearing fund deposits to obtain temporary liquidity
for purposes of meeting Default Obligations is not limited to pledging
such assets under the committed credit facility. Rather, OCC would have
express authority to use such assets to obtain liquidity through any
reasonable means as determined by designated executive officers of OCC
in their discretion. The addition of the language ``or otherwise
obtain'' in Article VIII, Section 5(e) of the by-laws reflects that
certain transactions by which OCC may obtain liquidity could be
characterized as something other than a transaction in which funds are
``borrowed.'' For example, in a Master Repurchase Agreement, the
Agreement states that the parties' intent is for the transactions to be
``sales'' and ``purchases,'' but also contains provisions if such
transactions are deemed to be loans. Accordingly, the use of ``or
otherwise obtain'' in the phrase ``borrow or otherwise obtain''
addresses the possibility that the transaction by which OCC obtains
funds may not be deemed to be a ``borrowing'' and forestalls technical
arguments that it would be necessary for the transaction to be a
``loan'' in order for OCC to borrow funds.
III. Discussion
Section 17A(b)(3)(F) of the Act requires that the rules of a
registered clearing agency be designed to promote the prompt and
accurate clearance and settlement of securities transactions and to
assure the safeguarding of securities and funds which are in the
custody or control of the clearing agency or for which it is
responsible.\6\ The proposed rule change is designed to clarify OCC's
authority to take action following a clearing member default in order
to facilitate the settlement of the defaulting clearing member's
payment obligations with respect to option premiums, settlement of
cash-settled option exercises, and mark-to-market payments. The
Commission believes that the express authority to obtain funds based on
a suspended member's clearing fund deposits and margin deposits may
facilitate OCC's ability to obtain the liquidity it needs to promote
the prompt and accurate clearance and settlement of securities
transactions and to assure the safeguarding of securities and funds
which are in the custody or control or for which OCC is responsible.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78a-1(b)(3)(F).
---------------------------------------------------------------------------
IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act \7\ and the
rules and regulations thereunder.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\8\ that the proposed rule change (File No. SR-OCC-2011-15) be, and
hereby is, approved.\9\
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78s(b)(2).
\9\ In approving this proposed rule change the Commission has
considered the proposed rule's impact of efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\10\
---------------------------------------------------------------------------
\10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-32142 Filed 12-14-11; 8:45 am]
BILLING CODE 8011-01-P