Self-Regulatory Organizations; Options Clearing Corporation; Order Approving Proposed Rule Change To Revise the Method for Determining the Minimum Clearing Fund Size To Include Consideration of the Amount Necessary To Draw on Secured Credit Facilities, 75466-75468 [2012-30689]
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75466
Federal Register / Vol. 77, No. 245 / Thursday, December 20, 2012 / Notices
Accordingly, granting such relief to the
Shares to permit the Trust and any of its
affiliated purchasers to redeem Shares
during the distribution of the Shares is
appropriate in the public interest, and is
consistent with the protection of
investors.
Conclusion
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It is hereby ordered, pursuant to Rule
101(d) of Regulation M, that, based on
the representations and facts presented
in the Letter, the Shares of the Trust are
exempt from the requirements of Rule
101 to permit persons participating in
the distribution of Shares of the Trust
and their affiliated purchasers to bid for
or purchase such Shares during their
participation in such distribution.
It is further ordered, pursuant to Rule
102(e) of Regulation M, that, based on
the representations and facts presented
in the Letter, the Shares of the Trust are
exempt from the requirements of Rule
102 to permit the Trust and any of its
affiliated purchasers to redeem Shares
of the Trust during the distribution of
such Shares.
This exemptive relief is subject to
modification or revocation at any time
the Commission determines that such
action is necessary or appropriate in
furtherance of the purposes of the
Exchange Act. Persons participating in
the distribution of Shares of the Trust
shall discontinue creations and
redemptions involving the Shares of the
Trust, in the event that any material
change occurs with respect to any of the
facts or representations made by the
Trust, the Sponsor, or its counsel. In
addition, persons relying on this
exemption are directed to the anti-fraud
and anti-manipulation provisions of the
Exchange Act, particularly Sections 9(a),
10(b), and Rule 10b-5 thereunder.
Responsibility for compliance with
these and any other applicable
provisions of the federal securities laws
and rules must rest with the persons
relying on this exemption. This order
does not represent the Commission
views with respect to any other question
that the proposed transactions may
raise, including, but not limited to the
adequacy of the disclosure concerning,
and the applicability of other federal or
state laws and rules to, the proposed
transactions.
By the Commission.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–30646 Filed 12–19–12; 8:45 am]
BILLING CODE 8011–01–P
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68437; File No. SR–ICEEU–
2012–08]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Notice of
Designation of a Longer Period for
Commission Action on Proposed Rule
Change To Clear Western European
Sovereign CDS Contracts
December 14, 2012.
On October 15, 2012, ICE Clear
Europe Limited (‘‘ICE Clear Europe’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change SR–ICEEU–2012–
08 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 2, 2012.3 The
Commission received one comment on
this proposal.4
Section 19(b)(2) of the Act 5 provides
that within 45 days of the publication of
notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day from the
publication of notice of filing of this
proposed rule change is December 17,
2012. The Commission is extending this
45-day time period.
The proposed rule change would
permit ICE Clear Europe to clear
Western European Sovereign credit
default swaps on the following
sovereign reference entities: Republic of
Ireland, Italian Republic, Hellenic
Republic, Portuguese Republic, and
Kingdom of Spain. In light of the fact
that ICE Clear Europe does not currently
provide clearing services for Western
European Sovereign credit default
swaps, and because no registered
clearing agency currently provides
clearing services for Western European
Sovereign credit default swaps, the
Commission finds it is appropriate to
designate a longer period within which
to take action on the proposed rule
change so that it has sufficient time to
consider this proposed rule change.
Accordingly, the Commission,
pursuant to Section 19(b)(2) of the Act,6
designates January 31, 2013, as the date
by which the Commission should either
approve or disapprove, or institute
proceedings to determine whether to
disapprove, the proposed rule change
(File No. SR–ICEEU–2012–08).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–30604 Filed 12–19–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68445; File No. SR–OCC–
2012–19]
Self-Regulatory Organizations;
Options Clearing Corporation; Order
Approving Proposed Rule Change To
Revise the Method for Determining the
Minimum Clearing Fund Size To
Include Consideration of the Amount
Necessary To Draw on Secured Credit
Facilities
December 14, 2012.
I. Introduction
On October 18, 2012, The Options
Clearing Corporation (‘‘OCC’’) filed with
the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change SR–OCC–
2012–19 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 7, 2012.3 The
Commission received no comment
letters. This order approves the
proposed rule change.
6 15
1 15
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 34–
68119 (October 29, 2012), 77 FR 66209 (November
2, 2012).
4 See Comments submitted to the Commission by
Darrell Duffie, Stanford University dated November
7, 2012 (https://www.sec.gov/comments/sr-iceeu2012-08/iceeu201208.shtml).
5 15 U.S.C. 78s(b)(2).
PO 00000
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U.S.C. 78s(b)(2).
CFR 200.30–3(a)(31).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 68130
(November 1, 2012), 77 FR 66900 (November 7,
2012). OCC also filed an advance notice relating to
these proposed changes. See Securities Exchange
Act Release No. 68225 (November 14, 2012), 77 FR
69668 (November 20, 2012). The Commission did
not receive any comments on this publication.
7 17
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Federal Register / Vol. 77, No. 245 / Thursday, December 20, 2012 / Notices
II. Description of the Proposed Rule
Change
A. Background
On September 23, 2011, the
Commission approved a proposed rule
change by OCC to establish the size of
OCC’s clearing fund as the amount that
is required, within a confidence level
selected by OCC, to sustain the
maximum anticipated loss under a
defined set of scenarios as determined
by OCC, subject to a minimum clearing
fund size of $1 billion.4 OCC
implemented this change in May 2012.
Until that time, the size of OCC’s
clearing fund was calculated each
month as a fixed percentage of the
average total daily margin requirement
for the preceding month, provided that
the calculation resulted in a clearing
fund of $1 billion or more.5
Under the formula that is
implemented for determining the size of
the clearing fund as a result of the May
2012 change, OCC’s Rules provide that
the amount of the fund is equal to the
larger of the amount of the charge to the
fund that would result from (i) a default
by the single ‘‘clearing member group’’ 6
whose default would be likely to result
in the largest draw against the clearing
fund or (ii) an event involving the nearsimultaneous default of two randomlyselected ‘‘clearing member groups’’ in
each case as calculated by OCC with a
confidence level selected by OCC.7 The
size of the clearing fund continues to be
recalculated monthly, based on a
monthly averaging of daily calculations
for the previous month, and it is subject
to a requirement that its minimum size
may not be less than $1 billion.
tkelley on DSK3SPTVN1PROD with
B. Proposed Rule Change
The proposed rule change will
implement a minimum clearing fund
4 Securities Exchange Act Release No. 34–65386
(September 23, 2011), 76 FR 60572 (September 29,
2011) (SR–OCC–2011–10).
5 If the calculation did not result in a clearing
fund size of $1 billion or more, then the percentage
of the average total daily margin requirement for the
preceding month that resulted in a fund level of at
least $1 billion would be applied. However, in no
event was the percentage permitted to exceed 7%.
With the rule change approved in September 2011,
this 7% limiting factor on the minimum clearing
fund size was eliminated.
6 The term ‘‘clearing member group’’ is defined in
OCC’s By-Laws to mean a clearing member and any
member affiliates of the clearing member.
7 The confidence levels employed by OCC in
calculating the charge likely to result from a default
by OCC’s largest ‘‘clearing member group’’ and the
default of two randomly-selected ‘‘clearing member
groups’’ were approved by the Commission at 99%
and 99.9%, respectively. However, the Commission
approval order notes that OCC retains discretion to
employ different confidence levels in these
calculations provided that OCC will not employ
confidence levels of less than 99% without first
filing a proposed rule change.
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size equal to 110% of the amount of
committed credit facilities secured by
the clearing fund so that the amount of
the clearing fund likely will exceed the
required collateral value that would be
necessary for OCC to be able to draw in
full on such credit facilities. OCC’s
clearing fund is primarily intended to
provide a high degree of assurance that
market integrity will be maintained in
the event that one or more clearing
members, settlement banks, or banks
that issue letters of credit on behalf of
clearing members as a form of margin
fails to meet its obligations.8 This
includes the potential use of the
clearing fund as a source of liquidity
should it ever be the case that OCC is
unable to obtain prompt delivery of, or
convert promptly to cash, any asset
credited to the account of a suspended
clearing member.
OCC’s committed credit facilities are
secured by assets in the clearing fund
and certain margin deposits of the
suspended clearing member. In light of
the uncertainty regarding the amount of
margin assets of a suspended clearing
member that might be eligible at any
given point to support borrowing under
the secured credit facilities, OCC has
considered the availability of funds
based on a consideration of the amount
of the clearing fund deposits available
as collateral. As an example, for OCC to
draw on the full amount of its current
credit facilities secured by the clearing
fund, the size of the clearing fund likely
would need to be approximately $2.2
billion. The $2.2 billion figure reflects a
10% increase above the total size of
such credit facilities, which is meant to
account for the percentage discount
applied to collateral pledged by OCC in
determining the amount available for
borrowing.
Based on monthly recalculation
information, the size of OCC’s clearing
fund during the period from July 2011
to July 2012 was less than $2.2 billion
on eight occasions. Therefore, to reduce
8 Under Article VIII, Section 1 of OCC’s By-Laws,
the clearing fund may be used to pay losses suffered
by OCC: (1) As a result of the failure of a clearing
member to perform its obligations with regard to
any exchange transaction accepted by OCC; (2) as
a result of a clearing member’s failure to perform
its obligations in respect of an exchange transaction
or an exercised/assigned options contract, or any
other contract or obligations in respect of which
OCC is liable; (3) as a result of the failure of a
clearing member to perform its obligations in
respect of stock loan or borrow positions; (4) as a
result of a liquidation of a suspended clearing
member’s open positions; (5) in connection with
protective transactions of a suspended clearing
member; (6) as a result of a failure of any clearing
member to make any other required payment or to
render any other required performance; or (7) as a
result of a failure of any bank or securities or
commodities clearing organization to perform its
obligations to OCC.
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75467
the risk that the assets in the clearing
fund might at any time be insufficient
to enable OCC to meet potential
liquidity needs by accessing the full
amount of its committed credit facilities
that are secured by the clearing fund,
OCC is amending the current minimum
clearing fund size requirement of $1
billion by providing instead that the
minimum clearing fund size is the
greater of either $1 billion or 110% of
the amount of such committed credit
facilities. OCC is denoting the credit
facility component of the minimum
clearing fund requirement as a
percentage of the total amount of the
credit facilities that OCC actually
secures with clearing fund assets
because OCC negotiates these credit
facility agreements, including size and
other terms, on an annual basis and the
total size is therefore subject to change.
III. Discussion
Section 17A(b)(3)(F) of the Act 9
requires that, among other things, that
the rules of a clearing agency are
designed to promote the prompt and
accurate clearance and settlement of
securities transactions and, to the extent
applicable, derivative agreements,
contracts, and transactions, and to
safeguard securities and funds in its
custody or control or for which it is
responsible. The proposed rule change
will further these ends by requiring a
minimum clearing fund size that is
designed to enable OCC to draw in full
on its committed credit facilities that are
secured by the clearing fund.
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 10 and the rules and regulations
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,11 that the
proposed rule change (File No. SR–
OCC–2012–19) be and hereby is
approved 12 as of the date of this order
or the date of the ‘‘Notice of No
Objection to Advance Notice Filing to
Revise the Method for Determining the
Minimum Clearing Fund Size to Include
Consideration of the Amount Necessary
to Draw on Secured Credit Facilities’’
9 15
U.S.C. 78q–1(b)(3)(F).
U.S.C. 78q–1.
11 15 U.S.C. 78s(b)(2).
12 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).
10 15
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Federal Register / Vol. 77, No. 245 / Thursday, December 20, 2012 / Notices
(File No. AN–OCC–2012–04), whichever
is later.
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.13
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–30689 Filed 12–19–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68440; File No. SR–
NYSEArca–2012–28]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of
Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed
Rule Change as Modified by
Amendment No. 1 To List and Trade
Shares of the JPM XF Physical Copper
Trust Pursuant to NYSE Arca Equities
Rule 8.201
December 14, 2012.
I. Introduction
On April 2, 2012, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to list and trade shares
(‘‘Shares’’) of JPM XF Physical Copper
Trust (‘‘Trust’’) pursuant to NYSE Arca
Equities Rule 8.201. J.P. Morgan
Commodity ETF Services LLC is the
sponsor of the Trust (‘‘Sponsor’’). The
proposed rule change was published for
comment in the Federal Register on
April 20, 2012.3
The Commission initially received
one comment letter, which opposed the
proposed rule change.4 On May 30,
2012, the Commission extended the
time period for Commission action to
July 19, 2012.5 On June 19, 2012, NYSE
Arca submitted a letter in support of its
proposal.6 On July 13, 2012, V&F
submitted a second comment letter
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. 66816
(April 16, 2012), 77 FR 23772 (‘‘Notice’’).
4 See letter from Vandenberg & Feliu, LLP
(‘‘V&F’’), received May 9, 2012 (‘‘V&F May 9
Letter’’). Comment letters are available at https://
www.sec.gov/comments/sr-nysearca-2012-28/
nysearca201228.shtml.
5 See Securities Exchange Act Release No. 67075,
77 FR 33258 (June 5, 2012).
6 See letter from Janet McGinness, General
Counsel, NYSE Markets, NYSE Euronext, to
Elizabeth M. Murphy, Secretary, Commission, dated
June 19, 2012 (‘‘Arca June 19 Letter’’).
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opposing the proposed rule change.7 On
July 16, 2012, United States Senator Carl
Levin submitted a comment letter
opposing the proposed rule change.8
Additionally, on July 19, 2012, the
Commission received a comment letter
from another party opposing the
proposed rule change.9
On July 19, 2012, the Commission
instituted proceedings to determine
whether to approve or disapprove the
proposed rule change.10 The initial
comments for the proceeding were due
on August 24, 2012, and the
Commission received four comment
letters (another letter from V&F, another
letter from the Exchange, a letter on
behalf of the Sponsor, and a letter from
several copper fabricators).11 Rebuttal
comments to submissions made during
the initial comment period were due on
September 10, 2012. The Commission
received three more comment letters
(another letter from V&F and two more
on behalf of the Sponsor).12 On October
7 See letter from Robert B. Bernstein, V&F, to
Elizabeth M. Murphy, Secretary, Commission, dated
July 13, 2012 (‘‘V&F July 13 Letter’’).
8 See letter from U.S. Senator Carl Levin, to
Elizabeth M. Murphy, Secretary, Commission, dated
July 16, 2012 (‘‘Levin Letter’’).
9 See Web comment from Suzanne H. Shatto
(‘‘Shatto Letter’’).
10 See Securities Exchange Act Release No. 67470,
77 FR 43620 (July 25, 2012) (‘‘Order Instituting
Proceedings’’).
11 See letters from Janet McGinness, General
Counsel, NYSE Markets, NYSE Euronext, to
Elizabeth M. Murphy, Secretary, Commission, dated
August 23, 2012 (‘‘Arca August 23 Letter’’); Joe
Williamson, Senior Vice President, Strategic
Sourcing, Southwire Company; Janet Sander, Vice
President, Director of Purchasing, Encore Wire
Corporation; Ron Beal, Executive Vice President,
Tubes Division, Luvata; and Mark Woehnklar,
President, Amrod Corp., to Elizabeth M. Murphy,
Secretary, Commission, dated August 23, 2012
(‘‘Copper Fabricators Letter’’); Robert B. Bernstein,
V&F, to Elizabeth M. Murphy, Secretary,
Commission, dated August 24, 2012 (‘‘V&F August
24 Letter’’); and John G. Crowley, Davis Polk &
Wardwell LLP (‘‘DP’’), on behalf of the Sponsor, to
Elizabeth M. Murphy, Secretary, Commission, dated
August 24, 2012 (‘‘DP August 24 Letter’’). In its
August 24 Letter, V&F requested to make an oral
presentation in the proceeding. See V&F August 24
Letter at 1. The Commission denied V&F’s request.
See letter from Kevin M. O’Neill, Deputy Secretary,
Commission, to Robert B. Bernstein, Eaton & Van
Winkle LLP (‘‘EVW’’), dated December 5, 2012,
available at https://www.sec.gov/comments/srnysearca-2012-28/nysearca201228.shtml. By letter
dated November 29, 2012, Mr. Bernstein informed
the Commission that he had left V&F and would
continue to represent Southwire Company, Encore
Wire Corporation, Luvata, and Amrod Corp.
(collectively, the ‘‘Copper Fabricators’’) and RK
Capital LLC in this proceeding.
12 See letters from Robert B. Bernstein, V&F, to
Elizabeth M. Murphy, Secretary, Commission, dated
September 10, 2012 (‘‘V&F September 10 Letter’’);
John G. Crowley, DP, on behalf of the Sponsor, to
Elizabeth M. Murphy, Secretary, Commission, dated
September 10, 2012 (‘‘DP September 10 Letter’’);
and John G. Crowley, DP, on behalf of the Sponsor,
to Elizabeth M. Murphy, Secretary, Commission,
dated September 12, 2012 (‘‘DP September 12
Letter’’).
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2, 2012, the Commission issued a notice
of designation of longer period for
Commission action on proceedings to
determine whether to approve or
disapprove the proposed rule change.13
The Commission subsequently received
six more comment letters (two more
letters from V&F, two letters from
Americans for Financial Reform, and
two letters from Robert E. Rutkowski).14
On November 30, 2012, the Exchange
filed Amendment No. 1 to the proposed
rule change.15 On December 7, 2012, the
13 See Securities Exchange Act Release No. 67965,
77 FR 61457 (October 9, 2012).
14 See letters from Robert B. Bernstein, V&F, to
Elizabeth M. Murphy, Secretary, Commission, dated
October 23, 2012 (‘‘V&F October 23 Letter’’);
Americans for Financial Reform (‘‘AFR’’), to
Elizabeth M. Murray [sic], Secretary, Commission,
dated October 23, 2012 (‘‘AFR October 23 Letter’’);
email from Robert E. Rutkowski, to Mary Schapiro,
Chair, Commission, dated October 24, 2012
(‘‘Rutkowski October 24 Letter’’); Robert B.
Bernstein, V&F, to Elizabeth M. Murphy, Secretary,
Commission, dated November 16, 2012 (‘‘V&F
November 16 Letter’’); AFR, to Elizabeth M. Murray
[sic], Secretary, Commission, dated November 16,
2012 (‘‘AFR November 16 Letter’’); and email from
Robert E. Rutkowski, to Mary Schapiro, Chair,
Commission, dated November 17, 2012
(‘‘Rutkowski November 17 Letter’’).
15 In Amendment No. 1, the Exchange represented
that: (1) It has obtained a representation from the
Sponsor that the Sponsor is affiliated with one or
more broker-dealers and other entities, and the
Sponsor will implement a firewall with respect to
such affiliate(s) regarding access to material nonpublic information of the Trust concerning the
Trust and the Shares, and will be subject to
procedures designed to prevent the use and
dissemination of material non-public information of
the Trust regarding the Trust and the Shares; (2) it
will obtain a representation from the Trust prior to
commencement of trading of the Shares that the net
asset value (‘‘NAV’’) of the Trust and the NAV per
Share will be calculated daily and made available
to all market participants at the same time; (3) if the
First-Out IIV or the Liquidation IIV (terms defined
infra in note 42) is not being disseminated as
required, the Exchange may halt trading during the
day in which the disruption occurs; if the
interruption persists past the day in which it
occurred, the Exchange will halt trading no later
than the beginning of the trading day following the
interruption; (4) its comprehensive surveillance
sharing agreement with the London Metal Exchange
(‘‘LME’’) applies to trading in copper derivatives (as
well as copper); (5) it will require that a minimum
of 100,000 Shares be outstanding at the start of
trading of the Shares; and (6) it can obtain
information regarding the activities of the Sponsor
and its affiliates under the Exchange’s listing rules.
Additionally, the Exchange supplemented its
description of surveillance applicable to the Shares
contained in the proposed rule change as originally
filed. Specifically, the Exchange represents that
trading in the Shares would be subject to the
existing trading surveillances, administered by the
Financial Industry Regulatory Authority (‘‘FINRA’’)
on behalf of the Exchange, and that, in addition,
FINRA would augment those existing surveillances
with a review specific to the Shares that is designed
to identify potential manipulative trading activity
through use of the creation and redemption process.
The Exchange represented that all those procedures
would be operational at the commencement of
trading in the Shares on the Exchange and that, on
an ongoing basis, NYSE Regulation, Inc. (on behalf
of the Exchange) and FINRA would regularly
monitor the continued operation of those
E:\FR\FM\20DEN1.SGM
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]]>Agencies
[Federal Register Volume 77, Number 245 (Thursday, December 20, 2012)]
[Notices]
[Pages 75466-75468]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-30689]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68445; File No. SR-OCC-2012-19]
Self-Regulatory Organizations; Options Clearing Corporation;
Order Approving Proposed Rule Change To Revise the Method for
Determining the Minimum Clearing Fund Size To Include Consideration of
the Amount Necessary To Draw on Secured Credit Facilities
December 14, 2012.
I. Introduction
On October 18, 2012, The Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change SR-OCC-2012-19 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 7, 2012.\3\ The
Commission received no comment letters. 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. 68130 (November 1,
2012), 77 FR 66900 (November 7, 2012). OCC also filed an advance
notice relating to these proposed changes. See Securities Exchange
Act Release No. 68225 (November 14, 2012), 77 FR 69668 (November 20,
2012). The Commission did not receive any comments on this
publication.
---------------------------------------------------------------------------
[[Page 75467]]
II. Description of the Proposed Rule Change
A. Background
On September 23, 2011, the Commission approved a proposed rule
change by OCC to establish the size of OCC's clearing fund as the
amount that is required, within a confidence level selected by OCC, to
sustain the maximum anticipated loss under a defined set of scenarios
as determined by OCC, subject to a minimum clearing fund size of $1
billion.\4\ OCC implemented this change in May 2012. Until that time,
the size of OCC's clearing fund was calculated each month as a fixed
percentage of the average total daily margin requirement for the
preceding month, provided that the calculation resulted in a clearing
fund of $1 billion or more.\5\
---------------------------------------------------------------------------
\4\ Securities Exchange Act Release No. 34-65386 (September 23,
2011), 76 FR 60572 (September 29, 2011) (SR-OCC-2011-10).
\5\ If the calculation did not result in a clearing fund size of
$1 billion or more, then the percentage of the average total daily
margin requirement for the preceding month that resulted in a fund
level of at least $1 billion would be applied. However, in no event
was the percentage permitted to exceed 7%. With the rule change
approved in September 2011, this 7% limiting factor on the minimum
clearing fund size was eliminated.
---------------------------------------------------------------------------
Under the formula that is implemented for determining the size of
the clearing fund as a result of the May 2012 change, OCC's Rules
provide that the amount of the fund is equal to the larger of the
amount of the charge to the fund that would result from (i) a default
by the single ``clearing member group'' \6\ whose default would be
likely to result in the largest draw against the clearing fund or (ii)
an event involving the near-simultaneous default of two randomly-
selected ``clearing member groups'' in each case as calculated by OCC
with a confidence level selected by OCC.\7\ The size of the clearing
fund continues to be recalculated monthly, based on a monthly averaging
of daily calculations for the previous month, and it is subject to a
requirement that its minimum size may not be less than $1 billion.
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\6\ The term ``clearing member group'' is defined in OCC's By-
Laws to mean a clearing member and any member affiliates of the
clearing member.
\7\ The confidence levels employed by OCC in calculating the
charge likely to result from a default by OCC's largest ``clearing
member group'' and the default of two randomly-selected ``clearing
member groups'' were approved by the Commission at 99% and 99.9%,
respectively. However, the Commission approval order notes that OCC
retains discretion to employ different confidence levels in these
calculations provided that OCC will not employ confidence levels of
less than 99% without first filing a proposed rule change.
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B. Proposed Rule Change
The proposed rule change will implement a minimum clearing fund
size equal to 110% of the amount of committed credit facilities secured
by the clearing fund so that the amount of the clearing fund likely
will exceed the required collateral value that would be necessary for
OCC to be able to draw in full on such credit facilities. OCC's
clearing fund is primarily intended to provide a high degree of
assurance that market integrity will be maintained in the event that
one or more clearing members, settlement banks, or banks that issue
letters of credit on behalf of clearing members as a form of margin
fails to meet its obligations.\8\ This includes the potential use of
the clearing fund as a source of liquidity should it ever be the case
that OCC is unable to obtain prompt delivery of, or convert promptly to
cash, any asset credited to the account of a suspended clearing member.
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\8\ Under Article VIII, Section 1 of OCC's By-Laws, the clearing
fund may be used to pay losses suffered by OCC: (1) As a result of
the failure of a clearing member to perform its obligations with
regard to any exchange transaction accepted by OCC; (2) as a result
of a clearing member's failure to perform its obligations in respect
of an exchange transaction or an exercised/assigned options
contract, or any other contract or obligations in respect of which
OCC is liable; (3) as a result of the failure of a clearing member
to perform its obligations in respect of stock loan or borrow
positions; (4) as a result of a liquidation of a suspended clearing
member's open positions; (5) in connection with protective
transactions of a suspended clearing member; (6) as a result of a
failure of any clearing member to make any other required payment or
to render any other required performance; or (7) as a result of a
failure of any bank or securities or commodities clearing
organization to perform its obligations to OCC.
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OCC's committed credit facilities are secured by assets in the
clearing fund and certain margin deposits of the suspended clearing
member. In light of the uncertainty regarding the amount of margin
assets of a suspended clearing member that might be eligible at any
given point to support borrowing under the secured credit facilities,
OCC has considered the availability of funds based on a consideration
of the amount of the clearing fund deposits available as collateral. As
an example, for OCC to draw on the full amount of its current credit
facilities secured by the clearing fund, the size of the clearing fund
likely would need to be approximately $2.2 billion. The $2.2 billion
figure reflects a 10% increase above the total size of such credit
facilities, which is meant to account for the percentage discount
applied to collateral pledged by OCC in determining the amount
available for borrowing.
Based on monthly recalculation information, the size of OCC's
clearing fund during the period from July 2011 to July 2012 was less
than $2.2 billion on eight occasions. Therefore, to reduce the risk
that the assets in the clearing fund might at any time be insufficient
to enable OCC to meet potential liquidity needs by accessing the full
amount of its committed credit facilities that are secured by the
clearing fund, OCC is amending the current minimum clearing fund size
requirement of $1 billion by providing instead that the minimum
clearing fund size is the greater of either $1 billion or 110% of the
amount of such committed credit facilities. OCC is denoting the credit
facility component of the minimum clearing fund requirement as a
percentage of the total amount of the credit facilities that OCC
actually secures with clearing fund assets because OCC negotiates these
credit facility agreements, including size and other terms, on an
annual basis and the total size is therefore subject to change.
III. Discussion
Section 17A(b)(3)(F) of the Act \9\ requires that, among other
things, that the rules of a clearing agency are designed to promote the
prompt and accurate clearance and settlement of securities transactions
and, to the extent applicable, derivative agreements, contracts, and
transactions, and to safeguard securities and funds in its custody or
control or for which it is responsible. The proposed rule change will
further these ends by requiring a minimum clearing fund size that is
designed to enable OCC to draw in full on its committed credit
facilities that are secured by the clearing fund.
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\9\ 15 U.S.C. 78q-1(b)(3)(F).
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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 \10\ and the
rules and regulations thereunder.
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\10\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\11\ that the proposed rule change (File No. SR-OCC-2012-19) be and
hereby is approved \12\ as of the date of this order or the date of the
``Notice of No Objection to Advance Notice Filing to Revise the Method
for Determining the Minimum Clearing Fund Size to Include Consideration
of the Amount Necessary to Draw on Secured Credit Facilities''
[[Page 75468]]
(File No. AN-OCC-2012-04), whichever is later.
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\11\ 15 U.S.C. 78s(b)(2).
\12\ 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).
\13\ 17 CFR 200.30-3(a)(12).
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\13\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-30689 Filed 12-19-12; 8:45 am]
BILLING CODE 8011-01-P
