Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change To Enhance the Measurement Used To Establish Minimum Capital Requirements for Banks Approved To Issue Letters of Credit, 27431-27432 [2015-11480]

Download as PDF Federal Register / Vol. 80, No. 92 / Wednesday, May 13, 2015 / Notices consistent with the protection of investors and the public interest, as it will enable the Exchange to meet its proposed implementation date of May 8, 2015, which will help facilitate the implementation of harmonized rules related to the adjustment and nullification of erroneous options transactions across the options exchanges. For this reason, the Commission designates the proposed rule change to be operative upon filing.23 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 necessary or appropriate in the public interest, for the protection of investors, or 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: asabaliauskas on DSK5VPTVN1PROD 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– ISEGemini–2015–11 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–ISEGemini–2015–11. 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– ISEGemini–2015–11 and should be submitted on or before June 3, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.24 Robert W. Errett, Deputy Secretary. [FR Doc. 2015–11483 Filed 5–12–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74894; File No. SR–OCC– 2015–007] Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change To Enhance the Measurement Used To Establish Minimum Capital Requirements for Banks Approved To Issue Letters of Credit May 7, 2015. On March 6, 2015, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change SR–OCC–2015– 007 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder.2 On March 25, 2015, the proposed rule change was published for comment in the Federal Register.3 The Commission did not receive any comments on the proposed rule change. This order approves the proposed rule change. 24 17 23 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). VerDate Sep<11>2014 17:27 May 12, 2015 Jkt 235001 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Securities Exchange Act Release No. 74536 (March 19, 2015), 80 FR 15846 (March 25, 2015) (SR–OCC–2015–007). 1 15 PO 00000 Frm 00148 Fmt 4703 Sfmt 4703 27431 I. Description OCC is amending its by-laws and rules in order to enhance the measurement used to establish minimum capital requirements for banks approved to issue letters of credit that may be deposited by clearing members as a form of margin asset. Currently, OCC’s Rule 604, Interpretation and Policy .01, requires U.S. banks to have $100,000,000 or more in shareholders’ equity, and nonU.S. banks to have $200,000,000 or more in shareholders’ equity, in order to be approved as an issuer of letters of credit that may be deposited by clearing members to meet their margin obligations at OCC. The purpose of these minimum capital requirements is to ensure that issuers of letters of credit whose letters of credit are deposited at OCC as a margin asset by clearing members have the ability to honor a demand for payment by OCC under such letters of credit should a need to do so arise, such as in the case of a clearing member default. The financial requirements set forth in OCC’s Rule 604 concerning issuers of letters of credit have been in place for many years.4 However, since OCC adopted Rule 604 and Interpretation and Policy .01 under Rule 604, bank financial reporting standards have changed. Today, bank regulators place a greater emphasis on Tier 1 Capital as opposed to shareholders’ equity 5 such that Tier 1 Capital is now considered the primary component of a bank’s total regulatory capital.6 Moreover, OCC notes that Tier 1 Capital is a more conservative measure of a bank’s financial health as it ignores subordinated debt, intermediate-term preferred stock, cumulative and longterm preferred stock and a portion of a bank’s allowance for loan and lease losses. OCC believes that by measuring a bank’s financial health based on Tier 1 Capital, instead of shareholders’ equity, OCC will reduce its credit risk to banks issuing letters of credit deposited by clearing members as a form of margin asset. As stated above, Tier 1 Capital is a more conservative measure of a bank’s 4 See Securities and Exchange Act Release No. 19422 (January 12, 1983), 48 FR 2481 (SR–OCC– 1982–08). 5 Tier 1 Capital is the measure used by the Basel Committee on Banking Supervision to measure the financial health of a bank. The goal of the Basel Committee on Banking Supervision is to strengthen the regulation, supervision and risk management of the banking sector. The Basel Committee on Banking Supervision’s most recent set of reform measures, Basel III, is located at: https:// www.bis.org/publ/bcbs189.pdf. 6 See https://www.kansascityfed.org/Publicat/ BasicsforBankDirectors/BasicsforBankDirectors.pdf. E:\FR\FM\13MYN1.SGM 13MYN1 27432 Federal Register / Vol. 80, No. 92 / Wednesday, May 13, 2015 / Notices financial health. Should OCC need to demand payment on a letter of credit deposited by a clearing member as a margin asset, such as in the case of a clearing member default, it is less likely that the bank issuing such letter of credit will not perform upon its payment commitment because the bank will be required to hold a greater amount of capital in order to be an OCC letter of credit bank. In turn, credit risk presented to OCC as a result of accepting letters of credit as a form of margin asset is reduced.7 In light of the more universal acceptance of Tier 1 Capital for bank financial reporting standards and the potential to reduce the credit risk associated with the issuance of letters of credit, OCC is amending Rule 604, Interpretation and Policy .01, to substitute Tier 1 Capital for shareholders’ equity. Pursuant to the rule change, as approved, OCC is also adding paragraph ‘‘c’’ to Interpretation and Policy .01 under Rule 604 to adopt a definition of Tier 1 Capital that leverages the definition of Tier 1 Capital used by a bank’s regulatory agency. OCC believes that such a definition is appropriate given that OCC accepts letters of credit from banks regulated by different regulatory authorities.8 In addition, OCC is making a conforming change to OCC Rule 604, Interpretation and Policy .04, so that any one bank may not issue letters of credit for an individual clearing member exceeding 15% of the bank’s Tier 1 Capital (instead of shareholders’ equity). asabaliauskas on DSK5VPTVN1PROD with NOTICES II. Discussion and Commission Findings Section 19(b)(2)(C) of the Act 9 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. The Commission finds that the proposed rule change is consistent with Section 17A(b)(3)(F) of the Act, which requires, among other things, that the rules of a clearing agency are designed 7 OCC does not anticipate that the proposed rule change will impact any of the banks already approved to issue letters of credit that may be deposited by clearing members as a form of margin since all such banks maintain amounts of Tier 1 Capital that exceed, as applicable, $100 million for U.S. banks or $200 million for Non-U.S. banks. 8 See OCC Rule 604(c). For example, OCC accepts letters of credit issued by banks regulated by The Federal Reserve Board, The Office of the Comptroller of the Currency, The Australian Prudential Regulation Authority and The German Federal Financial Supervisory Authority. 9 15 U.S.C. 78s(b)(2)(C). VerDate Sep<11>2014 17:27 May 12, 2015 Jkt 235001 to assure the safeguarding of securities and funds which are in the custody and control of the clearing agency or for which it is responsible.10 The rule change, as proposed, should help ensure the safeguarding of securities and funds which are in the custody and control of OCC, or for which OCC is responsible, because OCC will assess banks that issue letters of credit to be deposited as margin by clearing members using a more conservative capital requirement. This more conservative capital requirement thereby increases the likelihood that the bank will have the ability to honor a demand for payment made by OCC. For the same reason, OCC believes that the adoption of a more conservative capital requirement for banks approved to issue letters of credit that may be deposited by clearing members as a form of margin asset is consistent with the requirement of Rule 17Ad–22(d)(3), promulgated under the Act, which requires OCC hold assets in a manner that minimizes risk of loss or delay in access to them.11 III. Conclusion On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act, and in particular, with the requirements of Section 17A of the Act 12 and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,13 that the proposed rule change (SR–OCC–2015– 007) be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Robert W. Errett, Deputy Secretary. [FR Doc. 2015–11480 Filed 5–12–15; 8:45 am] October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681, et seq.; 22 U.S.C. 6501 note, et seq.), Delegation of Authority No. 234 of October 1, 1999, Delegation of Authority No. 236–3 of August 28, 2000 (and, as appropriate, Delegation of Authority No. 257 of April 15, 2003), I hereby determine that the objects to be included in the exhibition ‘‘Three Paintings by Johan Christian Dahl,’’ imported from abroad for temporary exhibition within the United States, are of cultural significance. The objects are imported pursuant to a loan agreement with the foreign owner or custodian. I also determine that the exhibition or display of the exhibit objects at The Metropolitan Museum of Art, New York, New York, from on or about June 1, 2015, until on or about June 30, 2016, and at possible additional exhibitions or venues yet to be determined, is in the national interest. I have ordered that Public Notice of these Determinations be published in the Federal Register. FOR FURTHER INFORMATION CONTACT: For further information, including a list of the exhibit objects, contact the Office of Public Diplomacy and Public Affairs in the Office of the Legal Adviser, U.S. Department of State (telephone: 202– 632–6471; email: section2459@ state.gov). The mailing address is U.S. Department of State, L/PD, SA–5, Suite 5H03, Washington, DC 20522–0505. Dated: May 6, 2015. Kelly Keiderling, Principal Deputy Assistant Secretary, Bureau of Educational and Cultural Affairs, Department of State. [FR Doc. 2015–11557 Filed 5–12–15; 8:45 am] BILLING CODE 4710–05–P BILLING CODE 8011–01–P DEPARTMENT OF STATE DEPARTMENT OF STATE [Public Notice 9131] [Public Notice 9132] In the Matter of the Review of the Designation of al-Qa’ida (and Other Aliases) as a Foreign Terrorist Organization Pursuant to Section 219 of the Immigration and Nationality Act Culturally Significant Objects Imported for Exhibition Determinations: ‘‘Three Paintings by Johan Christian Dahl’’ Exhibition Notice is hereby given of the following Determinations: Pursuant to the authority vested in me by the Act of SUMMARY: 10 15 U.S.C. 78q–1(b)(3)(F). CFR 240.17Ad–22(d)(3). 12 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 13 15 U.S.C. 78s(b)(2). 14 17 CFR 200.30–3(a)(12). 11 17 PO 00000 Frm 00149 Fmt 4703 Sfmt 4703 Based upon a review of the Administrative Record assembled in this matter pursuant to Section 219(a)(4)(C) and (b) of the Immigration and Nationality Act, as amended (8 U.S.C. 1189(a)(4)(C), (b)) (‘‘INA’’), and in consultation with the Attorney General and the Secretary of the Treasury, the Secretary of State concludes that the circumstances that were the basis for the 2009 decision to maintain the designation of the aforementioned E:\FR\FM\13MYN1.SGM 13MYN1

Agencies

[Federal Register Volume 80, Number 92 (Wednesday, May 13, 2015)]
[Notices]
[Pages 27431-27432]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-11480]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74894; File No. SR-OCC-2015-007]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving Proposed Rule Change To Enhance the Measurement Used To 
Establish Minimum Capital Requirements for Banks Approved To Issue 
Letters of Credit

May 7, 2015.
    On March 6, 2015, The Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change SR-OCC-2015-007 pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ On March 25, 2015, the proposed rule change was 
published for comment in the Federal Register.\3\ The Commission did 
not receive any comments on the proposed rule change. This order 
approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 74536 (March 19, 2015), 
80 FR 15846 (March 25, 2015) (SR-OCC-2015-007).
---------------------------------------------------------------------------

I. Description

    OCC is amending its by-laws and rules in order to enhance the 
measurement used to establish minimum capital requirements for banks 
approved to issue letters of credit that may be deposited by clearing 
members as a form of margin asset. Currently, OCC's Rule 604, 
Interpretation and Policy .01, requires U.S. banks to have $100,000,000 
or more in shareholders' equity, and non-U.S. banks to have 
$200,000,000 or more in shareholders' equity, in order to be approved 
as an issuer of letters of credit that may be deposited by clearing 
members to meet their margin obligations at OCC. The purpose of these 
minimum capital requirements is to ensure that issuers of letters of 
credit whose letters of credit are deposited at OCC as a margin asset 
by clearing members have the ability to honor a demand for payment by 
OCC under such letters of credit should a need to do so arise, such as 
in the case of a clearing member default.
    The financial requirements set forth in OCC's Rule 604 concerning 
issuers of letters of credit have been in place for many years.\4\ 
However, since OCC adopted Rule 604 and Interpretation and Policy .01 
under Rule 604, bank financial reporting standards have changed. Today, 
bank regulators place a greater emphasis on Tier 1 Capital as opposed 
to shareholders' equity \5\ such that Tier 1 Capital is now considered 
the primary component of a bank's total regulatory capital.\6\ 
Moreover, OCC notes that Tier 1 Capital is a more conservative measure 
of a bank's financial health as it ignores subordinated debt, 
intermediate-term preferred stock, cumulative and long-term preferred 
stock and a portion of a bank's allowance for loan and lease losses.
---------------------------------------------------------------------------

    \4\ See Securities and Exchange Act Release No. 19422 (January 
12, 1983), 48 FR 2481 (SR-OCC-1982-08).
    \5\ Tier 1 Capital is the measure used by the Basel Committee on 
Banking Supervision to measure the financial health of a bank. The 
goal of the Basel Committee on Banking Supervision is to strengthen 
the regulation, supervision and risk management of the banking 
sector. The Basel Committee on Banking Supervision's most recent set 
of reform measures, Basel III, is located at: https://www.bis.org/publ/bcbs189.pdf.
    \6\ See https://www.kansascityfed.org/Publicat/BasicsforBankDirectors/BasicsforBankDirectors.pdf.
---------------------------------------------------------------------------

    OCC believes that by measuring a bank's financial health based on 
Tier 1 Capital, instead of shareholders' equity, OCC will reduce its 
credit risk to banks issuing letters of credit deposited by clearing 
members as a form of margin asset. As stated above, Tier 1 Capital is a 
more conservative measure of a bank's

[[Page 27432]]

financial health. Should OCC need to demand payment on a letter of 
credit deposited by a clearing member as a margin asset, such as in the 
case of a clearing member default, it is less likely that the bank 
issuing such letter of credit will not perform upon its payment 
commitment because the bank will be required to hold a greater amount 
of capital in order to be an OCC letter of credit bank. In turn, credit 
risk presented to OCC as a result of accepting letters of credit as a 
form of margin asset is reduced.\7\
---------------------------------------------------------------------------

    \7\ OCC does not anticipate that the proposed rule change will 
impact any of the banks already approved to issue letters of credit 
that may be deposited by clearing members as a form of margin since 
all such banks maintain amounts of Tier 1 Capital that exceed, as 
applicable, $100 million for U.S. banks or $200 million for Non-U.S. 
banks.
---------------------------------------------------------------------------

    In light of the more universal acceptance of Tier 1 Capital for 
bank financial reporting standards and the potential to reduce the 
credit risk associated with the issuance of letters of credit, OCC is 
amending Rule 604, Interpretation and Policy .01, to substitute Tier 1 
Capital for shareholders' equity. Pursuant to the rule change, as 
approved, OCC is also adding paragraph ``c'' to Interpretation and 
Policy .01 under Rule 604 to adopt a definition of Tier 1 Capital that 
leverages the definition of Tier 1 Capital used by a bank's regulatory 
agency. OCC believes that such a definition is appropriate given that 
OCC accepts letters of credit from banks regulated by different 
regulatory authorities.\8\ In addition, OCC is making a conforming 
change to OCC Rule 604, Interpretation and Policy .04, so that any one 
bank may not issue letters of credit for an individual clearing member 
exceeding 15% of the bank's Tier 1 Capital (instead of shareholders' 
equity).
---------------------------------------------------------------------------

    \8\ See OCC Rule 604(c). For example, OCC accepts letters of 
credit issued by banks regulated by The Federal Reserve Board, The 
Office of the Comptroller of the Currency, The Australian Prudential 
Regulation Authority and The German Federal Financial Supervisory 
Authority.
---------------------------------------------------------------------------

II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \9\ 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.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(2)(C).
---------------------------------------------------------------------------

    The Commission finds that the proposed rule change is consistent 
with Section 17A(b)(3)(F) of the Act, which requires, among other 
things, that the rules of a clearing agency are designed to assure the 
safeguarding of securities and funds which are in the custody and 
control of the clearing agency or for which it is responsible.\10\ The 
rule change, as proposed, should help ensure the safeguarding of 
securities and funds which are in the custody and control of OCC, or 
for which OCC is responsible, because OCC will assess banks that issue 
letters of credit to be deposited as margin by clearing members using a 
more conservative capital requirement. This more conservative capital 
requirement thereby increases the likelihood that the bank will have 
the ability to honor a demand for payment made by OCC. For the same 
reason, OCC believes that the adoption of a more conservative capital 
requirement for banks approved to issue letters of credit that may be 
deposited by clearing members as a form of margin asset is consistent 
with the requirement of Rule 17Ad-22(d)(3), promulgated under the Act, 
which requires OCC hold assets in a manner that minimizes risk of loss 
or delay in access to them.\11\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78q-1(b)(3)(F).
    \11\ 17 CFR 240.17Ad-22(d)(3).
---------------------------------------------------------------------------

III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act, and in 
particular, with the requirements of Section 17A of the Act \12\ and 
the rules and regulations thereunder.
---------------------------------------------------------------------------

    \12\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-OCC-2015-007) be, and it 
hereby is, approved.
---------------------------------------------------------------------------

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

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-11480 Filed 5-12-15; 8:45 am]
 BILLING CODE 8011-01-P
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