Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of an Advance Notice in Connection With a Proposed Change to its Operations in the Form of a Private Offering by OCC of Senior Unsecured Debt Securities, 42125-42127 [2013-16864]
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Federal Register / Vol. 78, No. 135 / Monday, July 15, 2013 / Notices
13. In the event the Commission
adopts a rule under the Act providing
substantially similar relief to that in the
order requested in the application, the
requested order will expire on the
effective date of that rule.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69955; File No. SR–OCC–
2013–804]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing of an Advance Notice in
Connection With a Proposed Change
to its Operations in the Form of a
Private Offering by OCC of Senior
Unsecured Debt Securities
[FR Doc. 2013–16855 Filed 7–12–13; 8:45 am]
July 10, 2013.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting.
CITATION OF
PREVIOUS ANNOUNCEMENT: [78 FR
40780, July 8, 2013].
FEDERAL REGISTER
STATUS:
PLACE:
Closed Meeting.
100 F Street NE., Washington,
DC
DATE AND TIME OF PREVIOUSLY ANNOUNCED
MEETING: July 10, 2013 at 4:00 p.m.
CHANGE IN THE MEETING:
Additional
tkelley on DSK3SPTVN1PROD with NOTICES
Item.
The following matter will also be
considered during the 4:00 p.m. Closed
Meeting scheduled for Wednesday July
10, 2013:
a personnel matter.
The General Counsel of the
Commission, or her designee, has
certified that, in her opinion, one or
more of the exemptions as set forth in
5 U.S.C. 552b(c)(2) and (6) and 17 CFR
200.402(a)(2) and (6), permit
consideration of the scheduled matter at
the Closed Meeting.
Commissioner Aguilar, as duty
officer, voted to consider the item listed
for the Closed Meeting in closed
session, and determined that no earlier
notice thereof was possible.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items. For further
information and to ascertain what, if
any, matters have been added, deleted
or postponed, please contact the Office
of the Secretary at (202) 551–5400.
Dated: July 10, 2013.
Elizabeth M. Murphy,
Secretary.
OCC is proposing to change its
operations in the form of a private
offering of senior unsecured debt
securities (‘‘Offering’’).
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Advance Notice
In its filing with the Commission,
OCC included statements concerning
the purpose of and basis for the advance
notice and discussed any comments it
received on the advance notice. The text
of these statements may be examined at
the places specified in Item IV below.
The clearing agency has prepared
summaries, set forth in section A below,
of the most significant aspects of such
statements.4
(A) Advance Notices Filed Pursuant to
Section 806(e) of the Clearing
Supervision Act
Description of Change
OCC states that the proposed Offering
would provide OCC with access to
additional liquidity for working capital
U.S.C. 5465(e)(1).
CFR 240.19b–4(n)(1)(i).
3 OCC is a designated financial market utility and
is required to file advance notices with the
Commission. See 12 U.S.C. 5465(e).
4 The Commission has modified the text of the
summaries prepared by the clearing agency.
2 17
BILLING CODE 8011–01–P
18:53 Jul 12, 2013
I. Clearing Agency’s Statement of the
Terms of Substance of the Advance
Notice
1 12
[FR Doc. 2013–16937 Filed 7–11–13; 11:15 am]
VerDate Mar<15>2010
Pursuant to Section 806(e)(1) of the
Payment, Clearing, and Settlement
Supervision Act of 2010 (‘‘Clearing
Supervision Act’’) 1 and Rule 19b–
4(n)(1)(i) 2 of the Securities Exchange
Act of 1934 (‘‘Exchange Act’’) notice is
hereby given that on June 10, 2013, The
Options Clearing Corporation (‘‘OCC’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
advance notice as described in Items I
and II below, which Items have been
substantially prepared by OCC.3 The
Commission is publishing this notice to
solicit comments on the advance notice
from interested persons.
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42125
needs and general corporate purposes.
The aggregate principal amount of the
senior unsecured debt securities placed
in the Offering is expected to be up to
$100 million. The proceeds of the
Offering would be among the financial
resources used to satisfy the
requirements applicable to OCC under
CFTC regulations.
Among other things, OCC states that
CFTC regulation Section 39.11(a)(2) 5
requires a derivatives clearing
organization (‘‘DCO’’) to hold an amount
of financial resources that, at a
minimum, exceeds the total amount that
would enable the DCO to cover its
operating costs for a period of at least
one year, calculated on a rolling basis.
In turn, CFTC regulation Section
39.11(e)(2) 6 provides that these
financial resources must include
unencumbered, liquid financial assets
(i.e., cash and/or highly liquid
securities), equal to at least six months’
operating costs. OCC states that the
Offering is intended to contribute to
OCC’s compliance with the financial
resources requirement under CFTC
regulation Section 39.11(a)(2) 7 and the
liquidity requirements prescribed by
CFTC regulation Section 39.11(e)(2).8
OCC states that the proceeds of the
offering would be invested in
instruments such as reverse repurchase
agreements in which working capital
may be invested under OCC’s By-Laws.
Under the proposal, OCC would issue
senior unsecured debt securities
through the Offering, which would be
structured as a private placement for
which a broker-dealer registered with
the Securities and Exchange
Commission under the Exchange Act
would act as the exclusive placement
agent. Under the terms of the Offering,
OCC would be required to use any
capital raised to finance its working
capital needs or for general corporate
purposes.
According to OCC, one of the
conditions of OCC’s proposed Offering
is the execution of definitive
agreements. These agreements are
expected to include a number of
conditions related to OCC’s performance
under such agreements including,
without limitation, certain covenants
and default provisions.
OCC states that the Offering would
involve a variety of customary fees and
expenses payable by OCC to the
placement agent and the noteholders,
including but not limited to: (1) A
placement agent fee calculated as a
5 17
CFR 39.11(a)(2).
CFR 39.11(e)(2).
7 17 CFR 39.11(a)(2).
8 17 CFR 39.11(e)(2).
6 17
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Federal Register / Vol. 78, No. 135 / Monday, July 15, 2013 / Notices
percentage of the aggregate principal
amount of debt securities sold in the
Offering; and (2) other costs and
expenses incurred by the placement
agent in relation to its activities in
connection with the Offering including,
but not limited to, travel expenses and
reasonable fees of counsel. These fees
and expenses may be paid out of the
proceeds of the Offering.
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Anticipated Effect on and Management
of Risk
OCC states that any impact of the
Offering on the risks presented by OCC
would be to reduce such risks by
providing an additional source of
liquidity for the protection of OCC, its
clearing members, and the options
market in general. OCC states that the
Offering would provide OCC with
additional liquidity for working capital
needs and general corporate purposes
and thereby assist OCC in satisfying the
CFTC’s requirements with respect to
liquidity under CFTC regulation Section
39.11.9
OCC states that, like any debt offering,
the Offering would involve risks.
According to OCC, one risk associated
with the Offering relates to the need for
OCC to maintain sufficient cash flow to
support ongoing interest payments to
the noteholders. OCC states this risk is
mitigated by its conservative fiscal
practices under which clearing and
other fees are assessed at a level
designed to ensure that OCC has more
than sufficient funds to operate and
satisfy liabilities, and refunds are paid
to clearing members only when it is
clear that excess funds are available.
Clearing member refunds would be
effectively subordinated to interest
payments on the notes sold in the
Offering.
OCC states that the Offering involves
a risk of OCC’s defaulting by failing to
make timely payment of principal or
interest or to comply with financial
covenants, which would allow the
noteholders to take legal action against
OCC to recover any losses resulting from
a default. However, OCC states that the
risk of default from a payment failure is
mitigated because, as discussed above,
OCC does not expect to have difficulty
making interest payments. Similarly,
OCC states that the tests included in the
financial covenants will be established
at reasonable levels, making it unlikely
that OCC would default by violating
these covenants. In addition, because
the Offering would involve the issuance
of unsecured notes, OCC states that it
would not be at risk of the noteholders’
9 17
liquidating OCC assets in the event of
OCC’s default.
The agreement with noteholders also
requires OCC to make the noteholders
‘‘whole’’ in the event OCC elects to
prepay any outstanding principal.
According to OCC, this ‘‘make-whole’’
covenant poses risk to the extent OCC
is unable to immediately pay the
outstanding interest payments. OCC
would mitigate the risk of having to
make a large make-whole payment by
either electing not to call the notes prior
to termination or by waiting to call the
notes until the make-whole premium
has been reduced by the passage of time
to a smaller amount. OCC expects to
need the additional liquidity for the
term of the notes and to issue the notes
at a time of favorable market conditions,
and accordingly OCC does not expect to
call the notes prior to termination.
According to OCC, one risk of
obtaining capital through the Offering as
opposed to an unsecured line of credit
is that OCC will incur more expense in
connection with the Offering given that
it must pay interest expense on the
entire outstanding note balance as
opposed to a comparatively smaller
commitment fee on a line of credit.
However, OCC states that this risk is
justified by the difficulty in obtaining an
unsecured line of credit of a size
comparable to that of the Offering.
Moreover, OCC states the risk is
mitigated by OCC’s investment of the
proceeds, which generates income to
offset the interest expense. In addition,
by obtaining capital through the
Offering OCC avoids the funding risk
associated with a line of credit.
III. Date of Effectiveness of the Advance
Notice and Timing for Commission
Action
OCC may implement the proposed
change pursuant to Section 806(e)(1)(G)
of the Clearing Supervision Act 10 if it
has not received an objection to the
proposed change within 60 days of the
later of (i) the date that the Commission
received the advance notice or (ii) the
date the Commission receives any
further information it requested for
consideration of the notice. The clearing
agency shall not implement the
proposed change if the Commission has
any objection to the proposed change.
The Commission may extend the
period for review by an additional 60
days if the proposed change raises novel
or complex issues, subject to the
Commission providing the clearing
agency with prompt written notice of
the extension. A proposed change may
be implemented in less than 60 days
CFR 39.11.
VerDate Mar<15>2010
18:53 Jul 12, 2013
10 12
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U.S.C. 5465(e)(1)(G).
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from the date of receipt of the advance
notice, or the date the Commission
receives any further information it
requested, if the Commission notifies
the clearing agency in writing that it
does not object to the proposed change
and authorizes the clearing agency to
implement the proposed change on an
earlier date, subject to any conditions
imposed by the Commission.
The clearing agency shall post notice
on its Web site of proposed changes that
are implemented.
The proposal shall not take effect
until all regulatory actions required
with respect to the proposal are
completed.11
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–OCC–2013–804 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–2013–804. 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 advance notice that
are filed with the Commission, and all
written communications relating to the
advance notice 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
11 OCC also filed the proposals contained in this
advance notice as a proposed rule change under
Section 19(b)(1) of the Exchange Act and Rule 19b–
4 thereunder. See supra note 3.
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Federal Register / Vol. 78, No. 135 / Monday, July 15, 2013 / Notices
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of OCC and on OCC’s Web site
(https://theocc.com/about/publications/
bylaws.jsp). All comments received will
be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–OCC–
2013–804 and should be submitted on
or before August 5, 2013.
By the Commission.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–16864 Filed 7–12–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69954; File No. SR–NSCC–
2013–802]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing
Amendment No. 2 to an Advance
Notice, as Previously Modified by
Amendment No. 1, To Institute
Supplemental Liquidity Deposits to Its
Clearing Fund Designed To Increase
Liquidity Resources To Meet Its
Liquidity Needs
July 9, 2013.
On March 21, 2013, National
Securities Clearing Corporation
(‘‘NSCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
advance notice SR–NSCC–2013–802
(‘‘Advance Notice’’) pursuant to Section
806(e)(1) of the Payment, Clearing, and
Settlement Supervision Act of 2010
(‘‘Clearing Supervision Act’’) 1 and Rule
19b–4(n)(1)(i) 2 thereunder.3 On April
1 12
U.S.C. 5465(e)(1).
CFR 240.19b–4(n)(1)(i).
3 NSCC also filed the proposal contained in the
Advance Notice as proposed rule change SR–
NSCC–2013–02 (‘‘Proposed Rule Change’’) under
Section 19(b)(1) of the Securities and Exchange Act
of 1934 (‘‘Exchange Act’’) and Rule 19b–4
thereunder. Release No. 34–69313 (Apr. 4, 2013), 78
FR 21487 (Apr. 10, 2013). On April 19, 2013, NSCC
filed Amendment No. 1 to the Proposed Rule
Change, which, on May 22, 2013, the Commission
provided notice of and designated a longer period
of review for Commission action on the Proposed
Rule Change, as modified by Amendment No. 1.
Release No. 34–69620 (May 22, 2013), 78 FR 32292
(May 29, 2013). On June 11, 2013, NSCC filed
Amendment No. 2 to the Proposed Rule Change,
which the Commission published notice of with an
order instituting proceedings to determine whether
to approve or disapprove the Proposed Rule
Change. Release No. 34–69951 (July 9, 2013). The
proposal in the Advance Notice, as amended, and
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2 17
VerDate Mar<15>2010
18:53 Jul 12, 2013
Jkt 229001
19, 2013, NSCC filed with the
Commission Amendment No. 1 to the
Advance Notice.4 The Advance Notice,
as modified by Amendment No. 1, was
published for comment in the Federal
Register on May 1, 2013.5 On May 20,
2013, the Commission extended the
period of review of the Advance Notice,
as modified by Amendment No. 1.6 As
of July 9, 2013, the Commission had
received fourteen comment letters on
the proposal contained in the Advance
Notice and its related Proposed Rule
Change,7 including NSCC’s response to
the comment letters received as of June
10, 2013.8
Pursuant to Section 806(e)(1) of the
Clearing Supervision Act 9 and Rule
19b–4(n)(1)(i) 10 thereunder, notice is
hereby given that on June 11, 2013,
NSCC filed with the Commission
Amendment No. 2 to the Advance
Notice, as previously modified by
Amendment No. 1.11 The Commission
is publishing this notice to solicit
comments on the Advance Notice, as
modified by Amendment No. 2, from
interested persons.
the Proposed Rule Change, as amended, shall not
take effect until all regulatory actions required with
respect to the proposal are completed.
4 See Release No. 34–69451 (Apr. 25, 2013), 78 FR
25496 (May 1, 2013).
5 Id.
6 Release No. 34–69605 (May 20, 2013), 78 FR
31616 (May 24, 2013). Absent a request by the
Commission to NSCC to provide additional
information on the Advance Notice pursuant to
Section 806(e)(1)(D) of the Clearing Supervision
Act, see 12 U.S.C. 5465(e)(1)(D), the Commission
shall have until July 19, 2013 to issue an objection
or non-objection to the Advance Notice, as
amended. See Release No. 34–69605 (May 20,
2013), 78 FR 31616 (May 24, 2013), and see 12
U.S.C. 5465(e)(1)(E) and (G).
7 See Comments Received on File Nos. SR–
NSCC–2013–02 (https://sec.gov/comments/sr-nscc2013-02/nscc201302.shtml) and SR–NSCC–2013–
802 (https://sec.gov/comments/sr-nscc-2013-802/
nscc2013802.shtml). Since the proposal contained
in the Advance Notice was also filed as a Proposed
Rule Change, see Release No. 34–69313, supra note
3, the Commission is considering all public
comments received on the proposal regardless of
whether the comments are submitted to the
Advance Notice, as amended, or the Proposed Rule
Change, as amended.
8 NSCC also received a comment letter directly
prior to filing the Advance Notice and related
Proposed Rule Change with the Commission, which
NSCC provided to the Commission in Amendment
No. 1 to the filings. See Exhibit 2 to File No. SR–
NSCC–2013–802 (https://sec.gov/rules/sro/nscc/
2013/34-69451-ex2.pdf).
9 12 U.S.C. 5465(e)(1).
10 17 CFR 240.19b–4(n)(1)(i).
11 Defined terms that are not defined in this
notice are defined in Amended Exhibit 5 to the
Advance Notice, available at https://sec.gov/rules/
sro/nscc.shtml, under File No. SR–NSCC–2013–
802, Additional Materials.
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42127
I. Clearing Agency’s Statement of the
Terms of Substance of the Advance
Notice
The Advance Notice, as modified by
Amendment No. 2, is a proposal by
NSCC to amend its Rules and
Procedures (‘‘Rules’’) to provide for a
supplemental liquidity funding
obligation (‘‘SLD Proposal’’), as
described below. NSCC filed
Amendment No. 2 to the Advance
Notice, as previously modified by
Amendment No. 1, in order to mitigate
potential cash outlay burdens, respond
to transparency concerns raised by
NSCC members (‘‘Members’’), clarify the
implementation timeframe, and describe
the reports that would be provided to
Members so that they can anticipate
their supplemental liquidity obligations
to NSCC under the SLD Proposal
(‘‘Supplemental Liquidity Obligations’’).
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Advance Notice
In its filing with the Commission,
NSCC included statements concerning
the purpose of and basis for the
Advance Notice, as modified by
Amendment No. 2, and discussed any
comments it received on the Advance
Notice, as amended. The text of these
statements may be examined at the
places specified in Item IV below. NSCC
has prepared summaries, set forth in
sections (A), (B), and (C) immediately
below, of the most significant aspects of
these statements.12
(A) Advance Notices Filed Pursuant to
Section 806(e) of the Payment, Clearing
and Settlement Supervision Act
1. Description of Change
Original SLD Proposal
The original proposal contained in the
Advance Notice, as modified by
Amendment No. 1 (‘‘Original SLD
Proposal’’), would change the Rules to
add a new Rule 4A, in order to establish
a supplemental liquidity funding
obligation designed to cover the
liquidity exposure attributable to those
Members and families of affiliated
Members (‘‘Affiliated Families’’) that
regularly incur the largest gross
settlement debits over a settlement cycle
during both times of normal trading
activity (‘‘Regular Activity Periods’’)
and times of increased trading and
settlement activity that arise around
quarterly triple options expiration dates
(‘‘Quarterly Options Expiration Activity
Periods’’).
12 The Commission has modified the text of the
summaries prepared by NSCC to primarily focus on
the Advance Notice.
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]]>Agencies
[Federal Register Volume 78, Number 135 (Monday, July 15, 2013)]
[Notices]
[Pages 42125-42127]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16864]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69955; File No. SR-OCC-2013-804]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of an Advance Notice in Connection With a Proposed
Change to its Operations in the Form of a Private Offering by OCC of
Senior Unsecured Debt Securities
July 10, 2013.
Pursuant to Section 806(e)(1) of the Payment, Clearing, and
Settlement Supervision Act of 2010 (``Clearing Supervision Act'') \1\
and Rule 19b-4(n)(1)(i) \2\ of the Securities Exchange Act of 1934
(``Exchange Act'') notice is hereby given that on June 10, 2013, The
Options Clearing Corporation (``OCC'') filed with the Securities and
Exchange Commission (``Commission'') the advance notice as described in
Items I and II below, which Items have been substantially prepared by
OCC.\3\ The Commission is publishing this notice to solicit comments on
the advance notice from interested persons.
---------------------------------------------------------------------------
\1\ 12 U.S.C. 5465(e)(1).
\2\ 17 CFR 240.19b-4(n)(1)(i).
\3\ OCC is a designated financial market utility and is required
to file advance notices with the Commission. See 12 U.S.C. 5465(e).
---------------------------------------------------------------------------
I. Clearing Agency's Statement of the Terms of Substance of the Advance
Notice
OCC is proposing to change its operations in the form of a private
offering of senior unsecured debt securities (``Offering'').
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Advance Notice
In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the advance notice and
discussed any comments it received on the advance notice. The text of
these statements may be examined at the places specified in Item IV
below. The clearing agency has prepared summaries, set forth in section
A below, of the most significant aspects of such statements.\4\
---------------------------------------------------------------------------
\4\ The Commission has modified the text of the summaries
prepared by the clearing agency.
---------------------------------------------------------------------------
(A) Advance Notices Filed Pursuant to Section 806(e) of the Clearing
Supervision Act
Description of Change
OCC states that the proposed Offering would provide OCC with access
to additional liquidity for working capital needs and general corporate
purposes. The aggregate principal amount of the senior unsecured debt
securities placed in the Offering is expected to be up to $100 million.
The proceeds of the Offering would be among the financial resources
used to satisfy the requirements applicable to OCC under CFTC
regulations.
Among other things, OCC states that CFTC regulation Section
39.11(a)(2) \5\ requires a derivatives clearing organization (``DCO'')
to hold an amount of financial resources that, at a minimum, exceeds
the total amount that would enable the DCO to cover its operating costs
for a period of at least one year, calculated on a rolling basis. In
turn, CFTC regulation Section 39.11(e)(2) \6\ provides that these
financial resources must include unencumbered, liquid financial assets
(i.e., cash and/or highly liquid securities), equal to at least six
months' operating costs. OCC states that the Offering is intended to
contribute to OCC's compliance with the financial resources requirement
under CFTC regulation Section 39.11(a)(2) \7\ and the liquidity
requirements prescribed by CFTC regulation Section 39.11(e)(2).\8\ OCC
states that the proceeds of the offering would be invested in
instruments such as reverse repurchase agreements in which working
capital may be invested under OCC's By-Laws.
---------------------------------------------------------------------------
\5\ 17 CFR 39.11(a)(2).
\6\ 17 CFR 39.11(e)(2).
\7\ 17 CFR 39.11(a)(2).
\8\ 17 CFR 39.11(e)(2).
---------------------------------------------------------------------------
Under the proposal, OCC would issue senior unsecured debt
securities through the Offering, which would be structured as a private
placement for which a broker-dealer registered with the Securities and
Exchange Commission under the Exchange Act would act as the exclusive
placement agent. Under the terms of the Offering, OCC would be required
to use any capital raised to finance its working capital needs or for
general corporate purposes.
According to OCC, one of the conditions of OCC's proposed Offering
is the execution of definitive agreements. These agreements are
expected to include a number of conditions related to OCC's performance
under such agreements including, without limitation, certain covenants
and default provisions.
OCC states that the Offering would involve a variety of customary
fees and expenses payable by OCC to the placement agent and the
noteholders, including but not limited to: (1) A placement agent fee
calculated as a
[[Page 42126]]
percentage of the aggregate principal amount of debt securities sold in
the Offering; and (2) other costs and expenses incurred by the
placement agent in relation to its activities in connection with the
Offering including, but not limited to, travel expenses and reasonable
fees of counsel. These fees and expenses may be paid out of the
proceeds of the Offering.
Anticipated Effect on and Management of Risk
OCC states that any impact of the Offering on the risks presented
by OCC would be to reduce such risks by providing an additional source
of liquidity for the protection of OCC, its clearing members, and the
options market in general. OCC states that the Offering would provide
OCC with additional liquidity for working capital needs and general
corporate purposes and thereby assist OCC in satisfying the CFTC's
requirements with respect to liquidity under CFTC regulation Section
39.11.\9\
---------------------------------------------------------------------------
\9\ 17 CFR 39.11.
---------------------------------------------------------------------------
OCC states that, like any debt offering, the Offering would involve
risks. According to OCC, one risk associated with the Offering relates
to the need for OCC to maintain sufficient cash flow to support ongoing
interest payments to the noteholders. OCC states this risk is mitigated
by its conservative fiscal practices under which clearing and other
fees are assessed at a level designed to ensure that OCC has more than
sufficient funds to operate and satisfy liabilities, and refunds are
paid to clearing members only when it is clear that excess funds are
available. Clearing member refunds would be effectively subordinated to
interest payments on the notes sold in the Offering.
OCC states that the Offering involves a risk of OCC's defaulting by
failing to make timely payment of principal or interest or to comply
with financial covenants, which would allow the noteholders to take
legal action against OCC to recover any losses resulting from a
default. However, OCC states that the risk of default from a payment
failure is mitigated because, as discussed above, OCC does not expect
to have difficulty making interest payments. Similarly, OCC states that
the tests included in the financial covenants will be established at
reasonable levels, making it unlikely that OCC would default by
violating these covenants. In addition, because the Offering would
involve the issuance of unsecured notes, OCC states that it would not
be at risk of the noteholders' liquidating OCC assets in the event of
OCC's default.
The agreement with noteholders also requires OCC to make the
noteholders ``whole'' in the event OCC elects to prepay any outstanding
principal. According to OCC, this ``make-whole'' covenant poses risk to
the extent OCC is unable to immediately pay the outstanding interest
payments. OCC would mitigate the risk of having to make a large make-
whole payment by either electing not to call the notes prior to
termination or by waiting to call the notes until the make-whole
premium has been reduced by the passage of time to a smaller amount.
OCC expects to need the additional liquidity for the term of the notes
and to issue the notes at a time of favorable market conditions, and
accordingly OCC does not expect to call the notes prior to termination.
According to OCC, one risk of obtaining capital through the
Offering as opposed to an unsecured line of credit is that OCC will
incur more expense in connection with the Offering given that it must
pay interest expense on the entire outstanding note balance as opposed
to a comparatively smaller commitment fee on a line of credit. However,
OCC states that this risk is justified by the difficulty in obtaining
an unsecured line of credit of a size comparable to that of the
Offering. Moreover, OCC states the risk is mitigated by OCC's
investment of the proceeds, which generates income to offset the
interest expense. In addition, by obtaining capital through the
Offering OCC avoids the funding risk associated with a line of credit.
III. Date of Effectiveness of the Advance Notice and Timing for
Commission Action
OCC may implement the proposed change pursuant to Section
806(e)(1)(G) of the Clearing Supervision Act \10\ if it has not
received an objection to the proposed change within 60 days of the
later of (i) the date that the Commission received the advance notice
or (ii) the date the Commission receives any further information it
requested for consideration of the notice. The clearing agency shall
not implement the proposed change if the Commission has any objection
to the proposed change.
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\10\ 12 U.S.C. 5465(e)(1)(G).
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The Commission may extend the period for review by an additional 60
days if the proposed change raises novel or complex issues, subject to
the Commission providing the clearing agency with prompt written notice
of the extension. A proposed change may be implemented in less than 60
days from the date of receipt of the advance notice, or the date the
Commission receives any further information it requested, if the
Commission notifies the clearing agency in writing that it does not
object to the proposed change and authorizes the clearing agency to
implement the proposed change on an earlier date, subject to any
conditions imposed by the Commission.
The clearing agency shall post notice on its Web site of proposed
changes that are implemented.
The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.\11\
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\11\ OCC also filed the proposals contained in this advance
notice as a proposed rule change under Section 19(b)(1) of the
Exchange Act and Rule 19b-4 thereunder. See supra note 3.
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-OCC-2013-804 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-2013-804. 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 advance notice that are filed
with the Commission, and all written communications relating to the
advance notice 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
[[Page 42127]]
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of OCC and on OCC's
Web site (https://theocc.com/about/publications/bylaws.jsp). All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-OCC-2013-804 and should be
submitted on or before August 5, 2013.
By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-16864 Filed 7-12-13; 8:45 am]
BILLING CODE 8011-01-P
