Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change To Implement a Revised Method of Calculating Clearing Members' Respective Contributions to OCC's Clearing Fund, 24257-24258 [2013-09632]

Download as PDF Federal Register / Vol. 78, No. 79 / Wednesday, April 24, 2013 / Notices selling shares in exchange for investment securities is stated in the Trust’s current registration statement; (2) the shares will be sold at their net asset value in conformity with Rule 22c–1 under the Act; and (3) the investment securities will be of the type and quality that a Replacement Fund could have acquired with the proceeds from the sale of its shares had the shares been sold for cash. For each of the proposed In-Kind Transactions, LIAC and the relevant Subadviser(s) will analyze the portfolio securities being offered to each relevant Replacement Fund and will retain only those securities that it would have acquired for each such Fund in a cash transaction. 9. The Section 17 Applicants submit that, for all the reasons stated above: (1) The terms of the proposed In-Kind Transactions, including the consideration to be paid and received, are reasonable and fair to each of the relevant Replacement Funds, each of the relevant Existing Funds, and Contract Owners, and that the proposed In-Kind Transactions do not involve overreaching on the part of any person concerned; (2) the proposed In-Kind Transactions are, or will be, consistent with the policies of the relevant Replacement Funds and the relevant Existing Funds as stated in the relevant investment company’s registration statement and reports filed under the 1940 Act; and (3) the proposed In-Kind Transactions are, or will be, consistent with the general purposes of the 1940 Act. The Section 17 Applicants maintain that the proposed In-Kind Transactions, as described herein, are consistent with the general purposes of the 1940 Act set forth in Section 1 of the 1940 Act. In particular, the proposed InKind Transactions do not present any conditions or abuses that the 1940 Act was designed to prevent. Conclusion tkelley on DSK3SPTVN1PROD with NOTICES For the reasons set forth in the application, the Applicants submit that the proposed Substitutions and related transactions meet the standards of Section 26(c) of the 1940 Act and are consistent with the standards of Section 17(b) of the 1940 Act and that the requested orders should be granted. For the Commission, by the Division of Investment Management, under delegated authority. Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–09633 Filed 4–23–13; 8:45 am] BILLING CODE 8011–01–P VerDate Mar<15>2010 18:05 Apr 23, 2013 Jkt 229001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69403; File No. SR–OCC– 2013–02] Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change To Implement a Revised Method of Calculating Clearing Members’ Respective Contributions to OCC’s Clearing Fund April 18, 2013. I. Introduction On February 19, 2013 The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change SR–OCC–2013–02 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 March 8, 2013.3 The Commission received no comment letters. This order approves the proposed rule change. II. Description of the Proposed Rule Change The purpose of this proposed rule change is to revise OCC’s By-Laws and Rules to implement a revised method of calculating Clearing Members’ contributions to OCC’s Clearing Fund. Currently, Clearing Members contribute to the Clearing Fund in proportion to average daily open interest, i.e., the total number of cleared contracts and open positions plus units of stock underlying open stock loan or borrow positions, over the calendar month preceding the date of calculation, subject to a $150,000 minimum contribution. OCC has developed a new allocation formula that it believes will equitably allocate contributions among its Clearing Members based on each Clearing Member’s particular activities and use of OCC’s facilities.4 The revised formula will include the following components and weights: (1) Open interest (50% of total); (2) total risk charge (35% of total); and (3) volume (15% of total).5 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Securities Exchange Act Release No. 34–69026 (March 4, 2013), 78 FR 15088 (March 8, 2013). 4 OCC believes the new allocation formula generally reflects similar practices that are in place at the other clearing agencies registered with the Commission. See supra note 3, Securities Exchange Act Release No. 34–69026 (March 4, 2013), 78 FR 15088 (March 8, 2013). 5 Because Execution-Only Clearing Members do not clear their own trades, the measure of volume 2 17 PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 24257 The total risk charge is intended to measure the economic significance of the activities of a Clearing Member. The total risk charge is equal to the margin requirement, as determined by OCC, of the accounts of the Clearing Member exclusive of the net asset value of those accounts. OCC notes that a range of factors influence the relationship between the open interest in a Clearing Member’s account and its associated risk charge. For example, for each Clearing Member these factors include, but are not limited to, the types of positions, number of long positions versus short positions, value of the securities underlying the contracts, volatility of the underlying, diversification, number of accounts of the Clearing Member, and the extent to which the Clearing Member’s options positions are in-the-money or out-of-themoney. Volume, like open interest, is a measure of a Clearing Member’s level of usage of OCC’s facilities. However, volume is distinct from open interest in that it is a function of the average turnover of the positions in the Clearing Member’s account. Therefore, according to OCC, market-making, high frequency trading, and execution-only services are all examples of activities that might elevate volume relative to open interest. By contrast, holding long term positions in long term contracts is an example of activity that might lower a Clearing Member’s volume relative to its open interest. OCC believes that its proposed allocation formula is preferable to its current formula because, by incorporating measurements of volume and certain risk charges, it will apportion contributions based on more sophisticated measurements of Clearing Members’ usage of OCC’s facilities and recognize demands on OCC’s services and facilities that are not captured by open interest alone. OCC believes it is appropriate for open interest to continue to serve as the most heavily weighted component because open interest, generally speaking, is a measure of a Clearing Member’s overall usage of OCC’s facilities. The definition of open interest in proposed Rule 1001(d) is different than the definition of open interest in existing Rule 1001(b), which OCC is deleting, in a non-material way as a result of the use of the defined term ‘‘cleared contract’’ in proposed Rule 1001(d) instead of specifically naming the individual types of contracts that make up ‘‘cleared contracts.’’ applicable to them would be executed volume rather than cleared volume. E:\FR\FM\24APN1.SGM 24APN1 tkelley on DSK3SPTVN1PROD with NOTICES 24258 Federal Register / Vol. 78, No. 79 / Wednesday, April 24, 2013 / Notices OCC also believes that risk and volume are relevant factors because they distinctly measure material aspects of clearance and settlement activity and therefore a Clearing Member’s use of OCC’s resources. OCC notes that Clearing Members whose OCC accounts contain positions that are welldiversified and/or exhibit relatively little exposure to overall market direction will likely have a smaller required contribution under the proposed formula. Clearing Members exhibiting a relatively large exposure to market direction, a concentration in contracts that individually present high amounts of risk, and undiversified accounts will generally experience a larger required contribution than is the case under the current formula. OCC notes that most Clearing Member Groups6 will experience a material change (i.e., an increase or decrease of 10% or greater in the dollar amount of a Clearing Member Group’s aggregated Clearing Fund requirement) under the new formula. OCC notes that smaller single firms with lower initial Clearing Fund requirements may experience an increase under the new allocation formula because (i) they may have portfolios lacking the diversification that lowers the risk compared with open interest for larger firms, and (ii) the new formula adds a Clearing Fund share on top of the $150,000 minimum as opposed to instead of it. The Clearing Fund requirements under the new allocation formula will be communicated to Clearing Members with significant lead time to allow Clearing Members to review and prepare for any changes they may experience in their specific Clearing Fund contribution amount. OCC will contact those Clearing Members that will be negatively impacted in a material manner (i.e., an increase of 10% or greater in the dollar amount of a Clearing Member Group’s aggregate Clearing Fund requirement) to confirm such Clearing Members have reviewed the pro forma Clearing Fund requirement numbers and they are ready to meet the new requirement upon implementation. OCC will then begin a two stage phase in process for the new Clearing Fund requirements. The first stage of implementation will occur within 180 calendar days from the date that OCC provides notice to Clearing Members of its intent to implement the new formula. At that stage, open interest, total risk charge, and volume 6 The term ‘‘Clearing Member Group’’ is defined in Article I, Section 1 of OCC’s By-Laws as ‘‘a Clearing Member and any Member Affiliates of such Clearing Member.’’ VerDate Mar<15>2010 18:05 Apr 23, 2013 Jkt 229001 will be applied in the formula with weightings of 75%, 17.5%, and 7.5%, respectively. The second stage of implementation and the final weightings of 50%, 35%, and 15% will then be implemented within 360 days from the same date of the original notice to Clearing Members concerning implementation of the new formula. The proposed rule change will also create a defined term in OCC’s By-Laws, ‘‘Futures-Only Affiliated Clearing Member,’’ to refer to a Clearing Member that is admitted solely for the purpose of clearing transactions in security futures, commodity futures, and/or futures options.7 While the definition is new, there will be no substantive change to Section 2 of Article VIII, under which, if such a Clearing Member is a member affiliate of an earlieradmitted Clearing Member, the Clearing Member’s initial Clearing Fund contribution may be fixed by the Board as an amount that excludes the minimum Clearing Fund component of $150,000, so long as the earlier-admitted Clearing Member already satisfies that requirement. III. Discussion Section 19(b)(2)(C) of the Act 8 directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to such organization. Section 17A(b)(3)(F) of the Act 9 requires, 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, 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, and to protect investors and the public interest. Section 17A(b)(3)(D) of the Act 10 requires that the rules of the clearing agency provide for the equitable allocation of reasonable dues, fees, and other charges among its participants. Rule 17Ad–22(b)(2) 11 requires a 7 Article VIII, Section 2 of OCC’s By-Laws actually refers also to ‘‘commodity options,’’ but options directly on an underlying commodity—as opposed to options on futures—are now included in Section 1a(47) of the Commodity Exchange Act to fall within the definition of a ‘‘swap.’’ 7 U.S.C. 1a(47). Since OCC does not currently have rules for the clearing of swaps, the reference to commodity options is being omitted from the new definition. 8 15 U.S.C. 78s(b)(2)(C). 9 15 U.S.C. 78q–1(b)(3)(F). 10 15 U.S.C. 78q–1(b)(3)(D). 11 17 CFR 240.17Ad–22(b)(3). PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 registered clearing agency that performs central counterparty services to establish, implement, maintain, and enforce written policies and procedures reasonably designed to use risk-based models and parameters to set margin requirements and review such margin requirements and the related risk-based models and parameters at least monthly. The proposed rule change accomplishes these purposes by enhancing the Clearing Fund allocation methodology by incorporating measures that OCC believes will apportion contributions based on more sophisticated measurements of Clearing Members’ usage of OCC’s facilities and recognize demands on OCC’s services and facilities that are not captured by the current methodology. 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 12 and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,13 that the proposed rule change (File No. SR– OCC–2013–02) be and hereby is APPROVED.14 For the Commission by the Division of Trading and Markets, pursuant to delegated authority.15 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–09632 Filed 4–23–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69399; File No. SR–CBOE– 2013–039] Self-Regulatory Organizations; NYSE Arca, Inc.; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Fees for the BBO Data Feed for Securities Traded on the CBOE Stock Exchange April 18, 2013. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the 12 15 U.S.C. 78q–1. U.S.C. 78s(b)(2). 14 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). 15 17 CFR 200.30–3(a)(12). 13 15 E:\FR\FM\24APN1.SGM 24APN1

Agencies

[Federal Register Volume 78, Number 79 (Wednesday, April 24, 2013)]
[Notices]
[Pages 24257-24258]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-09632]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69403; File No. SR-OCC-2013-02]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving Proposed Rule Change To Implement a Revised Method of 
Calculating Clearing Members' Respective Contributions to OCC's 
Clearing Fund

April 18, 2013.

I. Introduction

    On February 19, 2013 The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2013-02 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 March 8, 2013.\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. 34-69026 (March 4, 
2013), 78 FR 15088 (March 8, 2013).
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    The purpose of this proposed rule change is to revise OCC's By-Laws 
and Rules to implement a revised method of calculating Clearing 
Members' contributions to OCC's Clearing Fund. Currently, Clearing 
Members contribute to the Clearing Fund in proportion to average daily 
open interest, i.e., the total number of cleared contracts and open 
positions plus units of stock underlying open stock loan or borrow 
positions, over the calendar month preceding the date of calculation, 
subject to a $150,000 minimum contribution.
    OCC has developed a new allocation formula that it believes will 
equitably allocate contributions among its Clearing Members based on 
each Clearing Member's particular activities and use of OCC's 
facilities.\4\ The revised formula will include the following 
components and weights: (1) Open interest (50% of total); (2) total 
risk charge (35% of total); and (3) volume (15% of total).\5\
---------------------------------------------------------------------------

    \4\ OCC believes the new allocation formula generally reflects 
similar practices that are in place at the other clearing agencies 
registered with the Commission. See supra note 3, Securities 
Exchange Act Release No. 34-69026 (March 4, 2013), 78 FR 15088 
(March 8, 2013).
    \5\ Because Execution-Only Clearing Members do not clear their 
own trades, the measure of volume applicable to them would be 
executed volume rather than cleared volume.
---------------------------------------------------------------------------

    The total risk charge is intended to measure the economic 
significance of the activities of a Clearing Member. The total risk 
charge is equal to the margin requirement, as determined by OCC, of the 
accounts of the Clearing Member exclusive of the net asset value of 
those accounts. OCC notes that a range of factors influence the 
relationship between the open interest in a Clearing Member's account 
and its associated risk charge. For example, for each Clearing Member 
these factors include, but are not limited to, the types of positions, 
number of long positions versus short positions, value of the 
securities underlying the contracts, volatility of the underlying, 
diversification, number of accounts of the Clearing Member, and the 
extent to which the Clearing Member's options positions are in-the-
money or out-of-the-money.
    Volume, like open interest, is a measure of a Clearing Member's 
level of usage of OCC's facilities. However, volume is distinct from 
open interest in that it is a function of the average turnover of the 
positions in the Clearing Member's account. Therefore, according to 
OCC, market-making, high frequency trading, and execution-only services 
are all examples of activities that might elevate volume relative to 
open interest. By contrast, holding long term positions in long term 
contracts is an example of activity that might lower a Clearing 
Member's volume relative to its open interest.
    OCC believes that its proposed allocation formula is preferable to 
its current formula because, by incorporating measurements of volume 
and certain risk charges, it will apportion contributions based on more 
sophisticated measurements of Clearing Members' usage of OCC's 
facilities and recognize demands on OCC's services and facilities that 
are not captured by open interest alone.
    OCC believes it is appropriate for open interest to continue to 
serve as the most heavily weighted component because open interest, 
generally speaking, is a measure of a Clearing Member's overall usage 
of OCC's facilities. The definition of open interest in proposed Rule 
1001(d) is different than the definition of open interest in existing 
Rule 1001(b), which OCC is deleting, in a non-material way as a result 
of the use of the defined term ``cleared contract'' in proposed Rule 
1001(d) instead of specifically naming the individual types of 
contracts that make up ``cleared contracts.''

[[Page 24258]]

    OCC also believes that risk and volume are relevant factors because 
they distinctly measure material aspects of clearance and settlement 
activity and therefore a Clearing Member's use of OCC's resources. OCC 
notes that Clearing Members whose OCC accounts contain positions that 
are well-diversified and/or exhibit relatively little exposure to 
overall market direction will likely have a smaller required 
contribution under the proposed formula. Clearing Members exhibiting a 
relatively large exposure to market direction, a concentration in 
contracts that individually present high amounts of risk, and 
undiversified accounts will generally experience a larger required 
contribution than is the case under the current formula.
    OCC notes that most Clearing Member Groups\6\ will experience a 
material change (i.e., an increase or decrease of 10% or greater in the 
dollar amount of a Clearing Member Group's aggregated Clearing Fund 
requirement) under the new formula. OCC notes that smaller single firms 
with lower initial Clearing Fund requirements may experience an 
increase under the new allocation formula because (i) they may have 
portfolios lacking the diversification that lowers the risk compared 
with open interest for larger firms, and (ii) the new formula adds a 
Clearing Fund share on top of the $150,000 minimum as opposed to 
instead of it.
---------------------------------------------------------------------------

    \6\ The term ``Clearing Member Group'' is defined in Article I, 
Section 1 of OCC's By-Laws as ``a Clearing Member and any Member 
Affiliates of such Clearing Member.''
---------------------------------------------------------------------------

    The Clearing Fund requirements under the new allocation formula 
will be communicated to Clearing Members with significant lead time to 
allow Clearing Members to review and prepare for any changes they may 
experience in their specific Clearing Fund contribution amount. OCC 
will contact those Clearing Members that will be negatively impacted in 
a material manner (i.e., an increase of 10% or greater in the dollar 
amount of a Clearing Member Group's aggregate Clearing Fund 
requirement) to confirm such Clearing Members have reviewed the pro 
forma Clearing Fund requirement numbers and they are ready to meet the 
new requirement upon implementation. OCC will then begin a two stage 
phase in process for the new Clearing Fund requirements. The first 
stage of implementation will occur within 180 calendar days from the 
date that OCC provides notice to Clearing Members of its intent to 
implement the new formula. At that stage, open interest, total risk 
charge, and volume will be applied in the formula with weightings of 
75%, 17.5%, and 7.5%, respectively. The second stage of implementation 
and the final weightings of 50%, 35%, and 15% will then be implemented 
within 360 days from the same date of the original notice to Clearing 
Members concerning implementation of the new formula.
    The proposed rule change will also create a defined term in OCC's 
By-Laws, ``Futures-Only Affiliated Clearing Member,'' to refer to a 
Clearing Member that is admitted solely for the purpose of clearing 
transactions in security futures, commodity futures, and/or futures 
options.\7\ While the definition is new, there will be no substantive 
change to Section 2 of Article VIII, under which, if such a Clearing 
Member is a member affiliate of an earlier-admitted Clearing Member, 
the Clearing Member's initial Clearing Fund contribution may be fixed 
by the Board as an amount that excludes the minimum Clearing Fund 
component of $150,000, so long as the earlier-admitted Clearing Member 
already satisfies that requirement.
---------------------------------------------------------------------------

    \7\ Article VIII, Section 2 of OCC's By-Laws actually refers 
also to ``commodity options,'' but options directly on an underlying 
commodity--as opposed to options on futures--are now included in 
Section 1a(47) of the Commodity Exchange Act to fall within the 
definition of a ``swap.'' 7 U.S.C. 1a(47). Since OCC does not 
currently have rules for the clearing of swaps, the reference to 
commodity options is being omitted from the new definition.
---------------------------------------------------------------------------

III. Discussion

    Section 19(b)(2)(C) of the Act \8\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to such organization. Section 17A(b)(3)(F) of the Act \9\ 
requires, 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, 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, and to protect 
investors and the public interest. Section 17A(b)(3)(D) of the Act \10\ 
requires that the rules of the clearing agency provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
its participants. Rule 17Ad-22(b)(2) \11\ requires a registered 
clearing agency that performs central counterparty services to 
establish, implement, maintain, and enforce written policies and 
procedures reasonably designed to use risk-based models and parameters 
to set margin requirements and review such margin requirements and the 
related risk-based models and parameters at least monthly.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(2)(C).
    \9\ 15 U.S.C. 78q-1(b)(3)(F).
    \10\ 15 U.S.C. 78q-1(b)(3)(D).
    \11\ 17 CFR 240.17Ad-22(b)(3).
---------------------------------------------------------------------------

    The proposed rule change accomplishes these purposes by enhancing 
the Clearing Fund allocation methodology by incorporating measures that 
OCC believes will apportion contributions based on more sophisticated 
measurements of Clearing Members' usage of OCC's facilities and 
recognize demands on OCC's services and facilities that are not 
captured by the current methodology.

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 \12\ and the 
rules and regulations thereunder.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (File No. SR-OCC-2013-02) be and 
hereby is APPROVED.\14\
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 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.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-09632 Filed 4-23-13; 8:45 am]
BILLING CODE 8011-01-P
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