Self-Regulatory Organizations; the Options Clearing Corporation; Order Approving Proposed Rule Change To Eliminate Preferred Stock and Corporate Bonds as Acceptable Forms of Margin Assets, 30674-30675 [2014-12224]

Download as PDF 30674 Federal Register / Vol. 79, No. 102 / Wednesday, May 28, 2014 / Notices through their MRVP, this filing does not implicate the burden analysis. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not significantly affect the protection of investors or the public interest, does not impose any significant burden on competition, and, by its terms, does not become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) 11 of the Act and Rule 19b– 4(f)(6) 12 thereunder. The Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing the proposed rule change. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Paper Comments • Send paper comments in triplicate to the Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–ISE–2014–12. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. 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–ISE– 2014–12 and should be submitted on or before June 18, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–12222 Filed 5–27–14; 8:45 am] BILLING CODE 8011–01–P emcdonald on DSK67QTVN1PROD with NOTICES 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– ISE–2014–12 on the subject line. 11 15 12 17 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). VerDate Mar<15>2010 16:58 May 27, 2014 13 17 Jkt 232001 PO 00000 CFR 200.30–3(a)(12). Frm 00136 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–72206; File No. SR–OCC– 2014–07] Self-Regulatory Organizations; the Options Clearing Corporation; Order Approving Proposed Rule Change To Eliminate Preferred Stock and Corporate Bonds as Acceptable Forms of Margin Assets May 21, 2014. I. Introduction On March 28, 2014, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change SR–OCC–2014–07 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 April 15, 2014.3 The Commission received no comment letters. For the reasons discussed below, the Commission is granting approval of the proposed rule change. II. Description A. Elimination of Preferred Stock & Corporate Bonds as Acceptable Margin Assets Pursuant to the proposed rule change, as approved, OCC is amending Rule 604(b)(4)4 to eliminate preferred stock and corporate bonds as acceptable forms of margin assets. OCC has accepted preferred stock and corporate bonds as margin since 1988.5 However, in more recent times, preferred stock and corporate bonds (on a combined basis) consistently have accounted for less than one percent of the margin assets on deposit at OCC. No corporate bonds have been deposited since March 2012. OCC presently uses a manual process to review the valuation methodology for preferred stocks and corporate bonds.6 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Securities Exchange Act Release No. 71910 (April 9, 2014), 79 FR 21319 (April 15, 2014). 4 OCC Rule 604 sets forth the forms of assets eligible to be deposited as margin and conditions that must be satisfied in order for margin credit to be given to such deposits. Eligible forms of margin assets presently are: cash, government securities, GSE debt securities, money market fund shares, letters of credit, common stock (including fund shares and index linked securities), corporate bonds, and preferred stock. 5 See Securities Exchange Act Release No. 29576 (August 16, 1991), 56 FR 41873 (August 23, 1991), (SR–OCC–88–03). 6 Such review process occurs monthly and contemplates: (1) adequacy of haircuts, (2) volume, and (3) price transparency. 2 17 E:\FR\FM\28MYN1.SGM 28MYN1 Federal Register / Vol. 79, No. 102 / Wednesday, May 28, 2014 / Notices While OCC believes this review process is adequate, it has concluded that the manual process is less robust than the daily automated Monte Carlo simulation-based methodology applied to deposits of common stocks.7 OCC states that it has researched the work necessary to integrate preferred stock and corporate bonds into STANS and otherwise automate monitoring and controls as they relate to risk managing these asset types. However, given the de minimis use of these securities as margin collateral, OCC determined that it would be inefficient and ineffective from a cost perspective to expend the significant time, resources and expenses needed to complete the required systems development to automate monitoring and assessment processes for these asset types. Therefore, OCC will discontinue accepting preferred stock and corporate bonds as forms of margin assets and remove provisions from the Rule 604(b)(4) pertaining to the deposit of these asset types. emcdonald on DSK67QTVN1PROD with NOTICES B. Additional Changes OCC is making additional amendments to Rule 604(b)(4) to eliminate certain provisions that will no longer be applicable upon the elimination of preferred stock as an acceptable form of margin asset.8 OCC is making conforming changes to remove provisions of Rule 604(b)(4) that: (i) Limit the amount of margin credit of any single issue to 10% of the market value of margin deposited by a clearing member because additional charges for concentrated positions are determined under STANS pursuant to Rule 601, and (ii) limit margin credit given to deposits to 70% of daily closing bid prices because haircuts applied to common stock deposits are determined under STANS pursuant to Rule 601.9 OCC is also adding a provision explicitly stating that common stock margin deposits are valued in accordance with Rule 601. OCC is also making additional amendments to Rule 604(b)(4) to eliminate a provision that automatically renders a common stock as ineligible for deposit if it is subject to special margin requirements under the rules of the listing market. OCC believes that it is 7 OCC uses STANS to value and risk-manage common stocks deposited as margin collateral. STANS calculates haircuts that are regularly tested, taking into account stressed market conditions. 8 Amended Rule 604(b)(4) will still set forth common stocks as a form of assets eligible for deposit as margin. 9 OCC has integrated common stocks into the process by which OCC calculates margin requirements using STANS. See Securities Exchange Act Release No. 58158 (July 15, 2008), 73 FR 42646 (July 22, 2008), (SR–OCC–2007–20). VerDate Mar<15>2010 16:58 May 27, 2014 Jkt 232001 not an efficient use of resources to monitor listing markets to determine if a common stock becomes subject to special margin rules. OCC also believes it is currently able to effectively risk manage common stocks that may become subject to special margin rules through existing STANS functionality. Section 19(b)(2)(C) of the Act 10 directs the Commission to approve a proposed rule change of a selfregulatory organization if it finds that the 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 11 requires that the rules of a clearing agency that is registered with the Commission be designed to, among other things, promote the prompt and accurate clearance and settlement of securities transactions. The Commission finds that the proposed rule change is consistent with Section 17A(b)(3)(F) of the Act 12 because eliminating preferred stock and corporate bonds as acceptable margin assets should facilitate the prompt and accurate clearance and settlement of securities transactions by ensuring that the process for valuating all margin assets will be automated using STANS, which should provide for a more expeditious and accurate valuation process than a manual haircut-based approach. Furthermore, eliminating preferred stock and corporate bonds as acceptable margin assets should further facilitate the prompt and accurate clearance and settlement of securities transactions because completely automating the margin valuation process should also give OCC the ability to make a more accurate determination of the sufficiency of all margin assets on deposit at any given point in time. 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 Act13 and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,14 that the proposed rule change (File No. SR– 11 15 U.S.C. 78s(b)(2)(C). U.S.C. 78q–1(b)(3)(F). 12 Id. 13 15 14 15 PO 00000 U.S.C. 78q-1. U.S.C. 78s(b)(2). Frm 00137 Fmt 4703 OCC–2014–07) be and hereby is approved.15 For the Commission by the Division of Trading and Markets, pursuant to delegated authority.16 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–12224 Filed 5–27–14; 8:45 am] BILLING CODE 8011–01–P III. Discussion 10 15 30675 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–72208; File No. SR–FINRA– 2014–023] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt FINRA Rule 2121 (Fair Prices and Commissions), Supplementary Material .01 (Mark-Up Policy) and Supplementary Material .02 (Additional Mark-Up Policy For Transactions in Debt Securities, Except Municipal Securities) in the Consolidated FINRA Rulebook May 21, 2014. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on May 9, 2014, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been substantially prepared by FINRA. FINRA has designated the proposed rule change as constituting a ‘‘noncontroversial’’ rule change under paragraph (f)(6) of Rule 19b–4 under the Act,3 which renders the proposal effective upon receipt of this filing by 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 Substance of the Proposed Rule Change FINRA is proposing to adopt current NASD Rule 2440 and Interpretive Material (‘‘IM’’) 2440–1 and IM–2440–2 as FINRA Rule 2121 (Fair Prices and Commissions), Supplementary Material .01 (Mark-Up Policy) and 15 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). 16 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 17 CFR 240.19b–4(f)(6). E:\FR\FM\28MYN1.SGM 28MYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 79, Number 102 (Wednesday, May 28, 2014)]
[Notices]
[Pages 30674-30675]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-12224]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72206; File No. SR-OCC-2014-07]


Self-Regulatory Organizations; the Options Clearing Corporation; 
Order Approving Proposed Rule Change To Eliminate Preferred Stock and 
Corporate Bonds as Acceptable Forms of Margin Assets

May 21, 2014.

I. Introduction

    On March 28, 2014, The Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2014-07 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 April 15, 2014.\3\ The Commission received no 
comment letters. For the reasons discussed below, the Commission is 
granting approval of the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 71910 (April 9, 2014), 
79 FR 21319 (April 15, 2014).
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II. Description

A. Elimination of Preferred Stock & Corporate Bonds as Acceptable 
Margin Assets

    Pursuant to the proposed rule change, as approved, OCC is amending 
Rule 604(b)(4)\4\ to eliminate preferred stock and corporate bonds as 
acceptable forms of margin assets.
---------------------------------------------------------------------------

    \4\ OCC Rule 604 sets forth the forms of assets eligible to be 
deposited as margin and conditions that must be satisfied in order 
for margin credit to be given to such deposits. Eligible forms of 
margin assets presently are: cash, government securities, GSE debt 
securities, money market fund shares, letters of credit, common 
stock (including fund shares and index linked securities), corporate 
bonds, and preferred stock.
---------------------------------------------------------------------------

    OCC has accepted preferred stock and corporate bonds as margin 
since 1988.\5\ However, in more recent times, preferred stock and 
corporate bonds (on a combined basis) consistently have accounted for 
less than one percent of the margin assets on deposit at OCC. No 
corporate bonds have been deposited since March 2012.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 29576 (August 16, 
1991), 56 FR 41873 (August 23, 1991), (SR-OCC-88-03).
---------------------------------------------------------------------------

    OCC presently uses a manual process to review the valuation 
methodology for preferred stocks and corporate bonds.\6\

[[Page 30675]]

While OCC believes this review process is adequate, it has concluded 
that the manual process is less robust than the daily automated Monte 
Carlo simulation-based methodology applied to deposits of common 
stocks.\7\ OCC states that it has researched the work necessary to 
integrate preferred stock and corporate bonds into STANS and otherwise 
automate monitoring and controls as they relate to risk managing these 
asset types. However, given the de minimis use of these securities as 
margin collateral, OCC determined that it would be inefficient and 
ineffective from a cost perspective to expend the significant time, 
resources and expenses needed to complete the required systems 
development to automate monitoring and assessment processes for these 
asset types. Therefore, OCC will discontinue accepting preferred stock 
and corporate bonds as forms of margin assets and remove provisions 
from the Rule 604(b)(4) pertaining to the deposit of these asset types.
---------------------------------------------------------------------------

    \6\ Such review process occurs monthly and contemplates: (1) 
adequacy of haircuts, (2) volume, and (3) price transparency.
    \7\ OCC uses STANS to value and risk-manage common stocks 
deposited as margin collateral. STANS calculates haircuts that are 
regularly tested, taking into account stressed market conditions.
---------------------------------------------------------------------------

B. Additional Changes

    OCC is making additional amendments to Rule 604(b)(4) to eliminate 
certain provisions that will no longer be applicable upon the 
elimination of preferred stock as an acceptable form of margin 
asset.\8\ OCC is making conforming changes to remove provisions of Rule 
604(b)(4) that: (i) Limit the amount of margin credit of any single 
issue to 10% of the market value of margin deposited by a clearing 
member because additional charges for concentrated positions are 
determined under STANS pursuant to Rule 601, and (ii) limit margin 
credit given to deposits to 70% of daily closing bid prices because 
haircuts applied to common stock deposits are determined under STANS 
pursuant to Rule 601.\9\ OCC is also adding a provision explicitly 
stating that common stock margin deposits are valued in accordance with 
Rule 601.
---------------------------------------------------------------------------

    \8\ Amended Rule 604(b)(4) will still set forth common stocks as 
a form of assets eligible for deposit as margin.
    \9\ OCC has integrated common stocks into the process by which 
OCC calculates margin requirements using STANS. See Securities 
Exchange Act Release No. 58158 (July 15, 2008), 73 FR 42646 (July 
22, 2008), (SR-OCC-2007-20).
---------------------------------------------------------------------------

    OCC is also making additional amendments to Rule 604(b)(4) to 
eliminate a provision that automatically renders a common stock as 
ineligible for deposit if it is subject to special margin requirements 
under the rules of the listing market. OCC believes that it is not an 
efficient use of resources to monitor listing markets to determine if a 
common stock becomes subject to special margin rules. OCC also believes 
it is currently able to effectively risk manage common stocks that may 
become subject to special margin rules through existing STANS 
functionality.

III. Discussion

    Section 19(b)(2)(C) of the Act \10\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that the 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 \11\ requires that the 
rules of a clearing agency that is registered with the Commission be 
designed to, among other things, promote the prompt and accurate 
clearance and settlement of securities transactions.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(2)(C).
    \11\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The Commission finds that the proposed rule change is consistent 
with Section 17A(b)(3)(F) of the Act \12\ because eliminating preferred 
stock and corporate bonds as acceptable margin assets should facilitate 
the prompt and accurate clearance and settlement of securities 
transactions by ensuring that the process for valuating all margin 
assets will be automated using STANS, which should provide for a more 
expeditious and accurate valuation process than a manual haircut-based 
approach. Furthermore, eliminating preferred stock and corporate bonds 
as acceptable margin assets should further facilitate the prompt and 
accurate clearance and settlement of securities transactions because 
completely automating the margin valuation process should also give OCC 
the ability to make a more accurate determination of the sufficiency of 
all margin assets on deposit at any given point in time.
---------------------------------------------------------------------------

    \12\ Id.
---------------------------------------------------------------------------

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\13\ and the 
rules and regulations thereunder.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (File No. SR-OCC-2014-07) be and 
hereby is approved.\15\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(2).
    \15\ 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.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-12224 Filed 5-27-14; 8:45 am]
BILLING CODE 8011-01-P

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