Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of an Advance Notice To Amend an Existing Interpretation and Policy To Give OCC Discretion Not To Grant a Particular Clearing Member Margin Credit for an Otherwise Eligible Security, 56953-56955 [2013-22405]

Download as PDF Federal Register / Vol. 78, No. 179 / Monday, September 16, 2013 / Notices days prior to each meeting so that appropriate arrangements can be made. Ted Wackler, Deputy Chief of Staff and Assistant Director. Dated: September 10, 2013. Elizabeth M. Murphy, Secretary. [FR Doc. 2013–22508 Filed 9–12–13; 11:15 am] BILLING CODE 8011–01–P [FR Doc. 2013–22551 Filed 9–13–13; 8:45 am] BILLING CODE 3170–F3–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70366; File No. SR–OCC– 2013–805] Sunshine Act Meeting mstockstill on DSK4VPTVN1PROD with NOTICES SECURITIES AND EXCHANGE COMMISSION Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of an Advance Notice To Amend an Existing Interpretation and Policy To Give OCC Discretion Not To Grant a Particular Clearing Member Margin Credit for an Otherwise Eligible Security Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94–409, that the Securities and Exchange Commission will hold an Open Meeting on September 17, 2013, at 3:00 p.m., in Room 10800 at the Commission’s headquarters building, to hear oral argument in an appeal by Montford and Company, Inc., d/b/a Montford Associates, and Earnest V. Montford from an initial decision of an administrative law judge. The law judge found that Montford Associates, a former investment adviser, and Montford, its president and sole owner, violated Sections 206(1) and (2) of the Investment Advisers Act of 1940 by failing to disclose a material conflict of interest: That they were receiving substantial payments from an investment manager they were also recommending. The law judge further found that they made materially false and misleading statements in Forms ADV in violation of Advisers Act Section 207 and that the firm failed to amend its Forms ADV in violation of Advisers Act Section 204 and Rule 204– 1(a)(2), misconduct that Montford aided and abetted and caused. The law judge imposed an industry-wide bar against Montford, entered a cease-and-desist order against both Respondents, and ordered them to pay disgorgement and civil penalties totaling $860,000. The issues likely to be considered at oral argument include whether the proceeding should be dismissed under Section 4E of the Securities Exchange Act of 1934, which provides a ‘‘deadline for completing enforcement investigations . . . not later than 180 days after’’ issuance of a Wells notice; whether Respondents violated the Advisers Act and its rule by failing to disclose their receipt of $210,000 from an investment manager that they recommended to clients and, if so, the extent to which sanctions are warranted under the circumstances. For further information, please contact the Office of the Secretary at (202) 551–5400. VerDate Mar<15>2010 17:46 Sep 13, 2013 Jkt 229001 September 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 (‘‘Act’’), notice is hereby given that on August 15, 2013, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the advance notice as described in Items I, II and III below, which Items have been prepared by OCC.3 The Commission is publishing this notice to solicit comments on the advance notice from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Advance Notice OCC proposes to amend an existing Interpretation and Policy so that OCC has discretion to disapprove as margin collateral for a particular clearing member, shares of an otherwise eligible security held as margin. 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 proposed advance notice and discussed any comments it received on the proposed advance notice. The text of 1 12 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). OCC also filed the proposal contained in this advance notice as a proposed rule change under Section 19(b)(1) of the Exchange Act and Rule 19b–4 thereunder. 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b–4, respectively. See SR–OCC–2013–14. 2 17 PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 56953 these statements may be examined at the places specified in Item IV below. OCC has prepared summaries, set forth in sections (A) and (B) below, of the most significant aspects of these statements. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Advance Notice The purpose of the proposed advance notice is to provide OCC with discretion with regard to granting or not granting margin credit to a clearing member. OCC currently may withhold margin credit from all clearing members with respect to a specific security. OCC proposes to address the risk presented by concentrated positions of securities posted as margin by particular clearing members by withholding margin credit from such clearing member’s accounts. OCC proposes to enhance its ability to limit its risk exposure to a concentrated position of equity securities posted as margin by a specific clearing member by providing OCC with the discretion to disregard, for the purposes of granting margin credit, some or all of the otherwise eligible equity securities posted as margin. In addition, the proposed advance notice is designed to provide OCC with discretion to make exceptions to proposed Interpretation and Policy .14 with respect to a specific clearing member. Accordingly, OCC may allow margin credit for an otherwise ineligible security for a specific clearing member in situations in which OCC determines that such security serves as a hedge to positions in cleared contracts in the same account of such clearing member. Rule 604 lists the acceptable types of assets that clearing members may post with OCC to satisfy their margin requirements under Rule 601, including equity securities, and establishes the eligibility criteria for such assets. Equity securities are the most common form of margin assets posted by clearing members and, under Rule 601, are included in OCC’s STANS margining system for the purposes of valuing such equity securities and determining on a portfolio basis a clearing member’s margin obligation to OCC. Interpretation and Policy .14 to Rule 604 allows OCC to disapprove a security as margin collateral for all clearing members based on a consideration of the factors set forth in the interpretation, including number of outstanding shares, number of outstanding shareholders and overall trading volume. The STANS system currently takes into account the risk to a portfolio presented by fluctuations in the market price of concentrated security positions by identifying the two E:\FR\FM\16SEN1.SGM 16SEN1 mstockstill on DSK4VPTVN1PROD with NOTICES 56954 Federal Register / Vol. 78, No. 179 / Monday, September 16, 2013 / Notices individual securities whose adverse price movements would result in the largest losses in each account and applying additional margin requirements to an account based on those losses if appropriate. However, this test does not evaluate a large equity securities position in relation to the securities position’s average daily trade volume, which would be relevant if OCC were required to liquidate the position. OCC has determined that in the event of a clearing member liquidation, OCC may be exposed to concentration risk arising from a large equity security position deposited or pledged as margin by a particular clearing member. Depending on the relationship between the average daily trading volume of a particular security and the number of outstanding shares of such security deposited by a clearing member as margin, it is possible that the listed equities markets may not be able to quickly absorb the equity securities OCC seeks to sell, or without an appreciable negative price impact, in the event OCC needs to liquidate the clearing member’s accounts. This risk is greatest when the number of shares being sold is large and the average daily trading volume is low. Neither the STANS system nor Rule 604 explicitly addresses this type of concentration risk. To address concentration risk arising from the potential need to liquidate a particular clearing member’s margin collateral, OCC proposes to expand its discretion under Interpretation and Policy .14 to limit, in OCC’s discretion, the margin credit granted to an individual clearing member account which maintains a concentrated equity securities position by disregarding some or all of the otherwise eligible equity securities posted as margin based on an assessment of specific factors listed in Interpretation and Policy .14. OCC considers an equity security’s average daily trading volume and the number of shares a clearing member deposited as margin to be the two most significant factors when making a decision to limit margin credit due to concentration risk.4 In addition, OCC proposes to amend Interpretation and Policy .14 so that it may grant margin credit when otherwise ineligible securities are deposited as margin collateral if such ineligible securities act as a hedge against cleared contracts held in the same account. For example, if a clearing member deposits otherwise ineligible equity securities as margin, OCC may nevertheless deem such ineligible securities to be 4 The limit is currently two times the equity security’s average daily trading volume. VerDate Mar<15>2010 17:46 Sep 13, 2013 Jkt 229001 acceptable margin collateral to the extent that the position is a hedge against a short position in its cleared contracts, because a decline in the value of the securities that serve as a hedge would be wholly or partially offset by an increase in value in the hedged position thereby reducing or eliminating the concentration risk. In such a situation, OCC will limit the margin credit granted to the lesser of a multiple of the daily trading volume or the ‘‘delta equivalent position’’ 5 for the particular equity security, taking into account the hedging position.6 OCC staff has been monitoring concentrated securities positions and assessing the impact of the proposed change described in this advance notice filing. OCC believes that, with OCC’s assistance by supplying additional information to clearing members, clearing members will be able to accommodate the proposed changes without undue hardship. Accordingly, after receiving regulatory approval for the proposed advance notice, OCC will implement the change and work on an ‘‘as needed’’ manual basis with clearing members that are impacted until the limits are imposed systematically and the distribution of the applicable files and reports to clearing members is automated. The proposed advance notice is consistent with Section 806(e)(1)(A) 7 of the Payment, Clearing, and Settlement Supervision Act of 2010 because the proposed change could be deemed to 5 The ‘‘delta equivalent position’’ is the value of a securities position that takes into account the position’s use as a hedge against cleared option or futures positions. This value is calculated using the ‘‘delta’’ of the option or futures contract, which is the ratio between the theoretical change in the price of an underlying asset to the corresponding change in the price of the options or futures contract. Thus, delta measures the sensitivity of an options or futures contract price to changes in the price of the underlying asset. For example, a delta of +0.7 means that for every $1 increase in the price of the underlying stock, the price of a call option will increase by $0.70. Delta for an option or future can be expressed in shares of the underlying asset. For example, a standard put option with a delta of -.45 would have a delta of -45 shares, because the unit of trading is 100 shares. 6 Assume, for example, an average daily trade volume of 250 shares, a threshold of 2 times the average daily trade volume, and a delta of -300 shares for the options on a particular security in a particular account. A position of 700 shares that did not hedge any short options or futures would receive credit for only 500 shares (i.e., 2 times the average daily trade volume). If the net long position in the account, as adjusted for the delta of short option and futures positions, were only 400, credit would be given for the entire 700 shares since the delta equivalent position is below the 500 share threshold. However, if the option delta were +300, the net long position would be 1000, and credit would only be given for 500 shares because the delta equivalent position would exceed the 500 share threshold. 7 12 U.S.C. 5465(e)(l)(A). PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 materially affect the nature or level of risks presented by OCC. The proposed advance notice enhances OCC’s ability to limit its risk exposure to potential losses from defaults by clearing members under normal market conditions through the use of risk-based parameters and encourages clearing members to have sufficient financial resources to meet their obligations to OCC. The proposed advance notice is not inconsistent with any existing OCC By-Laws or Rules, including those proposed to be amended. (B) Clearing Agency’s Statement on Comments on the Proposed Advance Notice Received From Members, Participants, or Others Written comments on the proposed advance notice were not and are not intended to be solicited with respect to the proposed advance notice and none have been received. III. Date of Effectiveness of the Advance Notice and Timing for Commission Action The clearing agency may implement the proposed change pursuant to Section 806(e)(1)(G) of the Clearing Supervision Act 8 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 objects to the proposed change within the required time period. 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 8 12 E:\FR\FM\16SEN1.SGM U.S.C. 5465(e)(1)(G). 16SEN1 Federal Register / Vol. 78, No. 179 / Monday, September 16, 2013 / Notices By the Commission. Kevin M. O’Neill, Deputy Secretary. with respect to the proposal are completed. IV. Solicitation of Comments [FR Doc. 2013–22405 Filed 9–13–13; 8:45 am] Interested persons are invited to submit written data, views and arguments concerning the foregoing. Comments may be submitted by any of the following methods: BILLING CODE 8011–01–P Electronic Comments [Release No. 34–70362; File No. SR–ISE– 2013–42] • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– OCC–2013–805 on the subject line. Paper Comments mstockstill on DSK4VPTVN1PROD with NOTICES All submissions should refer to File Number SR–OCC–2013–805. 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 of submission. The Commission will post all comments on the Commission’s Internet Web site (http://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 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 at http://www.theocc.com/components/ docs/legal/rules_and_bylaws/sr_occ_13_ 805.pdf. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–OCC–2013–805 and should be submitted on or before October 7, 2013. 17:46 Sep 13, 2013 Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Designation of a Longer Period for Commission Action on Proposed Rule Change to List Options on the Nations VolDex Index September 10, 2013. • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. VerDate Mar<15>2010 SECURITIES AND EXCHANGE COMMISSION Jkt 229001 On July 17, 2013, International Securities Exchange, LLC (‘‘Exchange’’) 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 options on the Nations VolDex index. The proposed rule change was published for comment in the Federal Register on August 2, 2013.3 The Commission received one comment letter 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 for this filing is September 16, 2013. The Commission is extending this 45-day time period. The Commission finds it 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, which would allow the listing of a new options product, the comment letter that was submitted in connection with this proposed rule change, and any response 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 70059 (July 29, 2013), 78 FR 47041. 4 See letter to Elizabeth M. Murphy, Secretary, Commission, from Edward T. Tilly, Chief Executive Officer, Chicago Board Options Exchange, Incorporated, dated August 23, 2013. 5 15 U.S.C. 78s(b)(2). 2 17 PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 56955 to the comment letter submitted by the Exchange. Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,6 designates October 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–ISE–2013–42). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–22402 Filed 9–13–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70360; File No. SR–BATS– 2013–049] Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Fees for Use of BATS Exchange, Inc. September 10, 2013. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on August 30, 2013, BATS Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BATS’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. The Exchange has designated the proposed rule change as one establishing or changing a member due, fee, or other charge imposed by the Exchange under Section 19(b)(3)(A)(ii) of the Act 3 and Rule 19b–4(f)(2) thereunder,4 which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change The Exchange filed a proposal to amend the fee schedule applicable to Members 5 and non-members of the 6 15 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 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2). 5 A Member is any registered broker or dealer that has been admitted to membership in the Exchange. 7 17 E:\FR\FM\16SEN1.SGM 16SEN1

Agencies

[Federal Register Volume 78, Number 179 (Monday, September 16, 2013)]
[Notices]
[Pages 56953-56955]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-22405]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70366; File No. SR-OCC-2013-805]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of an Advance Notice To Amend an Existing 
Interpretation and Policy To Give OCC Discretion Not To Grant a 
Particular Clearing Member Margin Credit for an Otherwise Eligible 
Security

September 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 
(``Act''), notice is hereby given that on August 15, 2013, The Options 
Clearing Corporation (``OCC'') filed with the Securities and Exchange 
Commission (``Commission'') the advance notice as described in Items I, 
II and III below, which Items have been prepared by OCC.\3\ The 
Commission is publishing this notice to solicit comments on the advance 
notice from interested persons.


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    \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). 
OCC also filed the proposal contained in this advance notice as a 
proposed rule change under Section 19(b)(1) of the Exchange Act and 
Rule 19b-4 thereunder. 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b-4, 
respectively. See SR-OCC-2013-14.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Advance Notice

    OCC proposes to amend an existing Interpretation and Policy so that 
OCC has discretion to disapprove as margin collateral for a particular 
clearing member, shares of an otherwise eligible security held as 
margin.

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 proposed advance notice and 
discussed any comments it received on the proposed advance notice. The 
text of these statements may be examined at the places specified in 
Item IV below. OCC has prepared summaries, set forth in sections (A) 
and (B) below, of the most significant aspects of these statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Advance Notice

    The purpose of the proposed advance notice is to provide OCC with 
discretion with regard to granting or not granting margin credit to a 
clearing member. OCC currently may withhold margin credit from all 
clearing members with respect to a specific security. OCC proposes to 
address the risk presented by concentrated positions of securities 
posted as margin by particular clearing members by withholding margin 
credit from such clearing member's accounts. OCC proposes to enhance 
its ability to limit its risk exposure to a concentrated position of 
equity securities posted as margin by a specific clearing member by 
providing OCC with the discretion to disregard, for the purposes of 
granting margin credit, some or all of the otherwise eligible equity 
securities posted as margin. In addition, the proposed advance notice 
is designed to provide OCC with discretion to make exceptions to 
proposed Interpretation and Policy .14 with respect to a specific 
clearing member. Accordingly, OCC may allow margin credit for an 
otherwise ineligible security for a specific clearing member in 
situations in which OCC determines that such security serves as a hedge 
to positions in cleared contracts in the same account of such clearing 
member.
    Rule 604 lists the acceptable types of assets that clearing members 
may post with OCC to satisfy their margin requirements under Rule 601, 
including equity securities, and establishes the eligibility criteria 
for such assets. Equity securities are the most common form of margin 
assets posted by clearing members and, under Rule 601, are included in 
OCC's STANS margining system for the purposes of valuing such equity 
securities and determining on a portfolio basis a clearing member's 
margin obligation to OCC. Interpretation and Policy .14 to Rule 604 
allows OCC to disapprove a security as margin collateral for all 
clearing members based on a consideration of the factors set forth in 
the interpretation, including number of outstanding shares, number of 
outstanding shareholders and overall trading volume. The STANS system 
currently takes into account the risk to a portfolio presented by 
fluctuations in the market price of concentrated security positions by 
identifying the two

[[Page 56954]]

individual securities whose adverse price movements would result in the 
largest losses in each account and applying additional margin 
requirements to an account based on those losses if appropriate. 
However, this test does not evaluate a large equity securities position 
in relation to the securities position's average daily trade volume, 
which would be relevant if OCC were required to liquidate the position. 
OCC has determined that in the event of a clearing member liquidation, 
OCC may be exposed to concentration risk arising from a large equity 
security position deposited or pledged as margin by a particular 
clearing member. Depending on the relationship between the average 
daily trading volume of a particular security and the number of 
outstanding shares of such security deposited by a clearing member as 
margin, it is possible that the listed equities markets may not be able 
to quickly absorb the equity securities OCC seeks to sell, or without 
an appreciable negative price impact, in the event OCC needs to 
liquidate the clearing member's accounts. This risk is greatest when 
the number of shares being sold is large and the average daily trading 
volume is low. Neither the STANS system nor Rule 604 explicitly 
addresses this type of concentration risk.
    To address concentration risk arising from the potential need to 
liquidate a particular clearing member's margin collateral, OCC 
proposes to expand its discretion under Interpretation and Policy .14 
to limit, in OCC's discretion, the margin credit granted to an 
individual clearing member account which maintains a concentrated 
equity securities position by disregarding some or all of the otherwise 
eligible equity securities posted as margin based on an assessment of 
specific factors listed in Interpretation and Policy .14. OCC considers 
an equity security's average daily trading volume and the number of 
shares a clearing member deposited as margin to be the two most 
significant factors when making a decision to limit margin credit due 
to concentration risk.\4\ In addition, OCC proposes to amend 
Interpretation and Policy .14 so that it may grant margin credit when 
otherwise ineligible securities are deposited as margin collateral if 
such ineligible securities act as a hedge against cleared contracts 
held in the same account. For example, if a clearing member deposits 
otherwise ineligible equity securities as margin, OCC may nevertheless 
deem such ineligible securities to be acceptable margin collateral to 
the extent that the position is a hedge against a short position in its 
cleared contracts, because a decline in the value of the securities 
that serve as a hedge would be wholly or partially offset by an 
increase in value in the hedged position thereby reducing or 
eliminating the concentration risk. In such a situation, OCC will limit 
the margin credit granted to the lesser of a multiple of the daily 
trading volume or the ``delta equivalent position'' \5\ for the 
particular equity security, taking into account the hedging 
position.\6\
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    \4\ The limit is currently two times the equity security's 
average daily trading volume.
    \5\ The ``delta equivalent position'' is the value of a 
securities position that takes into account the position's use as a 
hedge against cleared option or futures positions. This value is 
calculated using the ``delta'' of the option or futures contract, 
which is the ratio between the theoretical change in the price of an 
underlying asset to the corresponding change in the price of the 
options or futures contract. Thus, delta measures the sensitivity of 
an options or futures contract price to changes in the price of the 
underlying asset. For example, a delta of +0.7 means that for every 
$1 increase in the price of the underlying stock, the price of a 
call option will increase by $0.70. Delta for an option or future 
can be expressed in shares of the underlying asset. For example, a 
standard put option with a delta of -.45 would have a delta of -45 
shares, because the unit of trading is 100 shares.
    \6\ Assume, for example, an average daily trade volume of 250 
shares, a threshold of 2 times the average daily trade volume, and a 
delta of -300 shares for the options on a particular security in a 
particular account. A position of 700 shares that did not hedge any 
short options or futures would receive credit for only 500 shares 
(i.e., 2 times the average daily trade volume). If the net long 
position in the account, as adjusted for the delta of short option 
and futures positions, were only 400, credit would be given for the 
entire 700 shares since the delta equivalent position is below the 
500 share threshold. However, if the option delta were +300, the net 
long position would be 1000, and credit would only be given for 500 
shares because the delta equivalent position would exceed the 500 
share threshold.
---------------------------------------------------------------------------

    OCC staff has been monitoring concentrated securities positions and 
assessing the impact of the proposed change described in this advance 
notice filing. OCC believes that, with OCC's assistance by supplying 
additional information to clearing members, clearing members will be 
able to accommodate the proposed changes without undue hardship. 
Accordingly, after receiving regulatory approval for the proposed 
advance notice, OCC will implement the change and work on an ``as 
needed'' manual basis with clearing members that are impacted until the 
limits are imposed systematically and the distribution of the 
applicable files and reports to clearing members is automated.
    The proposed advance notice is consistent with Section 806(e)(1)(A) 
\7\ of the Payment, Clearing, and Settlement Supervision Act of 2010 
because the proposed change could be deemed to materially affect the 
nature or level of risks presented by OCC. The proposed advance notice 
enhances OCC's ability to limit its risk exposure to potential losses 
from defaults by clearing members under normal market conditions 
through the use of risk-based parameters and encourages clearing 
members to have sufficient financial resources to meet their 
obligations to OCC. The proposed advance notice is not inconsistent 
with any existing OCC By-Laws or Rules, including those proposed to be 
amended.
---------------------------------------------------------------------------

    \7\ 12 U.S.C. 5465(e)(l)(A).
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Comments on the Proposed Advance 
Notice Received From Members, Participants, or Others

    Written comments on the proposed advance notice were not and are 
not intended to be solicited with respect to the proposed advance 
notice and none have been received.

III. Date of Effectiveness of the Advance Notice and Timing for 
Commission Action

    The clearing agency may implement the proposed change pursuant to 
Section 806(e)(1)(G) of the Clearing Supervision Act \8\ 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 objects to the 
proposed change within the required time period.
---------------------------------------------------------------------------

    \8\ 12 U.S.C. 5465(e)(1)(G).
---------------------------------------------------------------------------

    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

[[Page 56955]]

with respect to the proposal are completed.

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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-OCC-2013-805 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-2013-805. 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 of submission. The Commission will post all 
comments on the Commission's Internet Web site (http://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 
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 at http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_13_805.pdf. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-OCC-2013-805 and should be submitted on or before 
October 7, 2013.

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-22405 Filed 9-13-13; 8:45 am]
BILLING CODE 8011-01-P