Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change Related to The Options Clearing Corporation's Trade Acceptance and Novation Rules, 15181-15187 [2018-07111]
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Federal Register / Vol. 83, No. 68 / Monday, April 9, 2018 / Notices
I. Introduction
The Commission gives notice that the
Postal Service filed request(s) for the
Commission to consider matters related
to negotiated service agreement(s). The
request(s) may propose the addition or
removal of a negotiated service
agreement from the market dominant or
the competitive product list, or the
modification of an existing product
currently appearing on the market
dominant or the competitive product
list.
Section II identifies the docket
number(s) associated with each Postal
Service request, the title of each Postal
Service request, the request’s acceptance
date, and the authority cited by the
Postal Service for each request. For each
request, the Commission appoints an
officer of the Commission to represent
the interests of the general public in the
proceeding, pursuant to 39 U.S.C. 505
(Public Representative). Section II also
establishes comment deadline(s)
pertaining to each request.
The public portions of the Postal
Service’s request(s) can be accessed via
the Commission’s website (https://
www.prc.gov). Non-public portions of
the Postal Service’s request(s), if any,
can be accessed through compliance
with the requirements of 39 CFR
3007.40.
The Commission invites comments on
whether the Postal Service’s request(s)
in the captioned docket(s) are consistent
with the policies of title 39. For
request(s) that the Postal Service states
concern market dominant product(s),
applicable statutory and regulatory
requirements include 39 U.S.C. 3622, 39
U.S.C. 3642, 39 CFR part 3010, and 39
CFR part 3020, subpart B. For request(s)
that the Postal Service states concern
competitive product(s), applicable
statutory and regulatory requirements
include 39 U.S.C. 3632, 39 U.S.C. 3633,
39 U.S.C. 3642, 39 CFR part 3015, and
39 CFR part 3020, subpart B. Comment
deadline(s) for each request appear in
section II.
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II. Docketed Proceeding(s)
18:06 Apr 06, 2018
[FR Doc. 2018–07200 Filed 4–6–18; 8:45 am]
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82984; File No. SR–
CboeBZX–2018–010]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of
Designation of a Longer Period for
Commission Action on a Proposed
Rule Change To Adopt BZX Rule
14.11(k) To Permit the Listing and
Trading of Managed Portfolio Shares
and To List and Trade Shares of the
ClearBridge Appreciation ETF,
ClearBridge Large Cap ETF,
ClearBridge MidCap Growth ETF,
ClearBridge Select ETF, and
ClearBridge All Cap Value ETF
April 3, 2018.
On February 5, 2018, Cboe BZX
Exchange, Inc. (‘‘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 adopt new Rule 14.11(k) to
permit it to list and trade Managed
Portfolio Shares. The Exchange also
proposed to list and trade shares of
ClearBridge Appreciation ETF,
ClearBridge Large Cap ETF, ClearBridge
MidCap Growth ETF, ClearBridge Select
ETF, and ClearBridge All Cap Value
ETF under proposed Rule 14.11(k). The
proposed rule change was published for
comment in the Federal Register on
February 20, 2018.3 The Commission
has received three comment letters on
the proposed rule change.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
1 15
1. Docket No(s).: CP2018–195; Filing
Title: Notice of United States Postal
Service of Filing a Functionally
Equivalent Global Reseller Expedited
Package 2 Negotiated Service
Agreement; Filing Acceptance Date:
April 3, 2018; Filing Authority: 39 CFR
3015.50; Public Representative: Curtis E.
Kidd; Comments Due: April 11, 2018.
VerDate Sep<11>2014
This Notice will be published in the
Federal Register.
Stacy L. Ruble,
Secretary.
Jkt 244001
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 82705
(February 13, 2018), 83 FR 7256.
4 See letters from: (1) Todd J. Broms, Chief
Executive Officer, Broms & Company LLC, dated
March 13, 2018; (2) Simon P. Goulet, Co-Founder,
Blue Tractor Group, LLC, dated March 19, 2018;
and (3) Terence W. Norman, Founder, Blue Tractor
Group, LLC, dated March 20, 2018. The comment
letters are available at https://www.sec.gov/
comments/sr-cboebzx-2018-010/cboebzx
2018010.htm.
5 15 U.S.C. 78s(b)(2).
2 17
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15181
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 after
publication of the notice for this
proposed rule change is April 6, 2018.
The Commission is extending this 45day time period.
The Commission finds that it is
appropriate to designate a longer period
within which to take action on the
proposed rule change so that it has
sufficient time to consider the proposed
rule change and the comment letters.
Accordingly, the Commission, pursuant
to Section 19(b)(2) of the Act, 6
designates May 21, 2018, as the date by
which the Commission shall either
approve or disapprove, or institute
proceedings to determine whether to
disapprove, the proposed rule change
(File Number SR–CboeBZX–2018–010).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–07112 Filed 4–6–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82983; File No. SR–OCC–
2018–007]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing of Proposed Rule Change
Related to The Options Clearing
Corporation’s Trade Acceptance and
Novation Rules
April 3, 2018.
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 March 23,
2018, The Options Clearing Corporation
(‘‘OCC’’) 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 OCC. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
6 Id.
7 17
CFR 200.30–3(a)(31).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 83, No. 68 / Monday, April 9, 2018 / Notices
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change by OCC
concerns modifications to OCC’s ByLaws and Rules to: (1) Clarify the time
at which OCC accepts and novates the
transactions that it clears; (2) streamline
provisions in the By-Laws and Rules
related to acceptance, novation and
trade reporting; and (3) delete
provisions that apply only to certain
dormant products that OCC no longer
clears and settles or that are no longer
applicable to OCC’s current clearing
processes.
The proposed amendments to OCC’s
By-Laws and Rules can be found in
Exhibits 5A and 5B to the filing,
respectively. Material proposed to be
added to OCC’s By-Laws and Rules as
currently in effect is marked by
underlining and material proposed to be
deleted is marked with strikethrough
text. Because proposed Rules 403
through 406 in Chapter IV are new and
are based on provisions relocated from
Article VI of OCC’s By-Laws,
underlining and strikethrough text have
been omitted with respect to those rules
in order to enhance their readability.
All terms with initial capitalization
that are not otherwise defined herein
have the same meaning as set forth in
the By-Laws and Rules.3
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission,
OCC included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. 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), (B),
and (C) below, of the most significant
aspects of these statements.
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(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
(1) Purpose
The purpose of this proposed rule
change is to amend OCC’s By-Laws and
Rules to: (1) Clarify the time at which
OCC accepts and novates 4 the
transactions that it clears; (2) streamline
provisions in the By-Laws and Rules
related to trade reporting and novation;
3 OCC’s By-Laws and Rules can be found on
OCC’s public website: https://optionsclearing.com/
about/publications/bylaws.jsp.
4 In this context, novation is the process through
which OCC is substituted as the buyer to the seller
and the seller to the buyer for each cleared contact.
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and (3) delete provisions that apply only
to certain dormant products that OCC
no longer clears and settles or that are
no longer applicable to OCC’s current
clearing processes.
Background
Acceptance and Novation Timing
Specifying a clear time at which OCC
accepts transactions for clearance and
settlement is important to Clearing
Members because that is the time under
OCC’s By-Laws and Rules at which the
following events occur: (1) OCC is
substituted through novation as the
central counterparty (‘‘CCP’’) to each
Clearing Member that was an initial
party to the transaction; (2) the rights of
the initial Clearing Member parties to
the transaction become solely as against
OCC; and (3) OCC becomes obligated to
each Clearing Member in accordance
with the By-Laws and Rules.5
Acceptance of transactions is important
to Clearing Members because, among
other things, settlement obligations
associated with transactions that OCC
accepts and novates are generally
guaranteed by OCC based upon certain
financial safeguards it maintains as a
CCP consistent with its responsibilities
under the Act and relevant regulations
thereunder.6
Current Acceptance and Novation of
Confirmed Trades
Under OCC’s current By-Laws and
Rules, a user must parse through a
number of definitions and provisions in
various locations to identify that time at
which acceptance and novation occur.
The term Confirmed Trade is defined in
OCC’s By-Laws to include all of the
products for which OCC currently
provides clearance and settlement
services, with the exception of certain
Stock Loan 7 transactions. Under OCC’s
current By-Laws, a Confirmed Trade 8 is
novated upon OCC’s acceptance, but
acceptance is not deemed to occur until
a designated Commencement Time.
Commencement Time is defined
5 See,
e.g., Article VI, Section 5 of the By-Laws.
generally 15 U.S.C. 78q–1; 17 CFR
240.17Ad–22.
7 See Article I, Section 1.S.(21) of the By-Laws.
The term Stock Loan may refer to either a Hedge
Loan that is part of OCC’s Stock Loan/Hedge
Program or a Market Loan that is part of OCC’s
Market Loan Program. Matters regarding the
acceptance and novation of these products is
addressed separately below.
8 Under OCC’s By-Laws, a Confirmed Trade is
defined as ‘‘a transaction for the purchase, writing,
or sale of a cleared contract, or for the closing out
of a long or short position in a cleared contract, that
is (i) effected on or through the facilities of an
Exchange and submitted to the Corporation for
clearance or (ii) affirmed through the facilities of an
OTC Trade Source and submitted to the
Corporation for clearance.’’
differently for different products that
meet the definition of a Confirmed
Trade, but Article VI, Section 5 of the
By-Laws (regarding OCC’s obligations)
generally defines it as the time at which
OCC makes available to Clearing
Members a Daily Position Report
reflecting the Confirmed Trade.9
Pursuant to Article VI, Section 7 of the
By-Laws (regarding the reporting of
Confirmed Trades) this acceptance is
subject to the condition that the
Exchange or OTC Trade Source on
which the transaction occurred has
reported to OCC, during such times as
OCC has prescribed, certain information
regarding the Confirmed Trade and that
such information passes OCC’s initial
validation checks.
Under Article VI, Section 8 of the ByLaws, OCC generally has no right (other
than regarding certain types of
Confirmed Trades discussed below) to
reject a Confirmed Trade due to the
failure of the Purchasing Clearing
Member to pay any amount due to OCC
at or before the settlement time. This
means that transactions in most
products that are Confirmed Trades will
inevitably be accepted for clearing and
novated at the Commencement Time
simply due to the passage of time.10
Therefore, most Confirmed Trades are
functionally novated under the current
By-Laws and Rules upon proper
submission to OCC for clearing.
Different Commencement Times and
Rejection Rights for Certain Confirmed
Trades
Certain categories of Confirmed
Trades, however, are not subject to the
general Commencement Time described
above, and OCC retains certain rights to
reject such transactions. Specifically,
Article VI, Section 5 of the By-Laws
excludes the products described below
from the general Commencement Time
and alternate definitions of
Commencement Time are set forth as
follows:
6 See
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9 This typically occurs at the end of each business
day.
10 An Exchange or OTC Trade Source, however,
may instruct OCC to disregard a transaction that it
previously reported as a Confirmed Trade ‘‘because
of a subsequent determination that (i) the trade
information submitted by the Purchasing Clearing
Member and Selling Clearing Member did not agree,
(ii) the trade information did not contain all the
information required by the Corporation as set forth
in the By-Laws and Rules, or (iii) new or revised
trade information was required to properly clear the
transaction.’’ See Article VI, Section 7 of the OCC
By-Laws. This authority would be preserved and
relocated into OCC’s Rules in connection with the
proposed changes described herein.
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(1) Futures issued in exchange-forphysical transactions,11 block trades,12
or other trades designated as noncompetitively executed—the time after
the transaction is reported to OCC that
OCC receives the first variation
settlement payment; 13
(2) Cross-rate FX options and FX
index options—the time that is three
hours following the settlement time of
the Confirmed Trade in which such
contract was purchased; 14 and
(3) OTC Options (other than
Backloaded OTC Options)—the time
when a report of OCC’s acceptance is
made available to Clearing Members
through OCC’s clearing system.15
For Backloaded OTC Options, the
transaction is not accepted until the
Selling Clearing Member has met its
regular morning settlement obligation
on the business day following the
reporting of the trade to OCC.16
In addition to the separate
Commencement Times for these types of
Confirmed Trades, OCC also currently
has certain authority to reject such
trades due to the failure of the
Purchasing Clearing Member to pay an
amount due to OCC at or before the
applicable settlement time.17 In contrast
to most other types of Confirmed
Trades, this means that OCC continues
to have authority to reject these
transactions even after they are properly
submitted for clearing. OCC’s authority
to reject these types of Confirmed
Trades arises under the following
circumstances:
(1) Futures issued in exchange-forphysical transactions, block trades, or
other trades designated as noncompetitively executed—in the event
OCC fails to receive any variation
payment due in the accounts of the
Clearing Members;18
(2) Cross-rate FX options and FX
index options—in the event OCC fails to
receive from the Purchasing Clearing
Member premiums denominated in the
proper trading currency in the account
11 An exchange-for-physical transaction (or
‘‘EFP’’) is a transaction between two parties in
which a futures contract on a commodity or
security is exchanged for the actual physical good.
12 A block trade is a trade involving a large
number of shares being traded at an arranged price
between parties, outside of the open markets, in
order to lessen the impact of such a large trade
being made public.
13 See Article XII, Section 7 of the OCC By-Laws.
14 See Articles XX, Section 1 and XXIII, Section
1 of the OCC By-Laws.
15 See Article VI, Section 5 of the OCC By-Laws.
16 Id.
17 See generally Article VI, Section 8 of the OCC
By-Laws identifying these exceptions.
18 See Article XII, Section 7 of the By-Laws.
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in which the transaction is effected; 19
and
(3) Backloaded OTC Options—in the
event the Selling Clearing Member does
not meet its regular morning settlement
obligation on the business day following
the reporting of the trade to OCC.20
Proposed Changes to Acceptance and
Novation Rules
Proposed Uniform Acceptance and
Novation Timing for Nearly All
Confirmed Trades
To provide greater certainty and
clarity to Clearing Members and other
interested parties regarding the
acceptance and novation timing for
transactions that OCC clears and settles,
OCC is proposing to amend the
substance of Article VI, Section 5 of the
By-Laws 21 to set forth a uniform
acceptance and novation time for nearly
all Confirmed Trades. As described in
more detail below, OCC would retain
exceptions from the uniform acceptance
and novation time for Confirmed Trades
in Backloaded OTC Options and
Confirmed Trades in futures issued in
exchange-for-physical transactions,
block trades, or other trades designated
as non-competitively executed.
To accomplish this, OCC proposes to
eliminate the concept of
Commencement Time and instead deem
nearly all Confirmed Trades to be
accepted and simultaneously novated
when they are reported to OCC and the
related position information has been
recorded in OCC’s clearing system
(which occurs on a real-time basis).22
This would, however, be subject to the
condition that the required transaction
information reported to OCC by the
Exchange or OTC Trade Source first
passes OCC’s validation procedures 23
and is provided to OCC at such time as
OCC prescribes. OCC believes this
change provides a more clear indication
19 See Article XX, Section 5, Article XXIII,
Section 7 of the By-Laws.
20 See Article VI, Section 8 of the By-Laws. In
addition, OCC will not accept a Backloaded OTC
Option for clearing if OCC receives it from the OTC
Trade Source after 4 p.m. Central on the business
day that is four business days prior to its expiration.
21 As described below under the heading
Reorganization, OCC also proposes to relocate the
provisions currently in Article VI, Section 5 of the
By-Laws to Rules 401 and 404.
22 OCC notes that upon acceptance and recording
of position information in OCC’s ENCORE clearing
system, Clearing Members have the ability to see
the trades they are responsible for via position
information screens in the ENCORE system and
through real-time messaging.
23 All inbound trades to OCC are subject to coded
validation of the required fields for trades. These
fields contain the critical details of the trade. These
details include, but are not limited to, the trade
source, symbol, expiration, strike, call or put,
quantity, price, and Clearing Member details of both
sides of the trade.
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of the point after which OCC does not
have authority to reject such
transactions for clearing.24 Eliminating
the concept of Commencement Time
also necessitates the deletion of the term
from the defined terms that appear in
Article I, Section 1 of the By-Laws and
replacing all references to
Commencement Time with references to
the time at which OCC accepts a
transaction for clearing. This change
requires amendments to OCC’s By-Laws,
specifically, amendments to the Article
I definition of ‘‘American; Americanstyle,’’ Article VI, Sections 5 and 6,25
Section 12 of Article VI, and Section 7
of Article XII.
As part of this proposed rule change,
OCC also proposes to clarify the trade
information required to be submitted by
the participant Exchange to OCC as a
condition to acceptance and novation.
For options transactions, Rule
401(a)(1)(i) would provide that these
terms include: (a) The identity of the
Purchasing Clearing Member and
Writing Clearing Member to the
transaction; (b) the clearing date; (c) the
transaction time; (d) the trade source; (e)
the trade quantity; (f) the trade price; (g)
the security type; (h) the ticker symbol;
(i) the series/contract date; (j) whether
the trade is a put or a call; (k) the strike
price; (l) whether the trade is a purchase
or a sale; (m) the account type; (n) the
allocation indicator, if applicable; (o)
the CMTA indicator, if applicable; (p)
the Give-Up Clearing Member, if
applicable; (q) the trade type, including,
in the case of futures options, whether
the transaction is a block trade,
exchange-for-physical, or any other
trade designated by the futures market
or security futures market reporting the
trade as a non-competitively executed
trade; (r) in the case of OTC options
transactions in a securities customers’
account, a unique customer ID for the
customer for whom the trade was
executed; and (s) in the case of OTC
options, such other variable terms as
provided in Section 6 of Article XVII of
the By-Laws. In addition to the
foregoing information that is required as
a condition to OCC’s acceptance of the
confirmed trade, Rule 401(a)(1)(ii)
would provide that OCC may also
request certain optional trade
24 As described above, an Exchange or OTC Trade
Source would continue to have the authority to
instruct OCC to disregard a Confirmed Trade. See
supra 10.
25 As described in more detail below, OCC
proposes to relocate Article VI, Sections 5 and 6 to
Rules 401, 404 and 405 to help streamline and
reorganize provisions addressing trade reporting
and novation.
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Federal Register / Vol. 83, No. 68 / Monday, April 9, 2018 / Notices
information that is not required as a
condition for acceptance.26
For futures transactions, Rule
401(a)(2)(i) would provide that the
required terms for acceptance and
novation include: (a) The identity of the
Purchasing Clearing Member and the
Selling Clearing Member to the
transaction; (b) the clearing date; (c) the
transaction time; (d) the trade source; (e)
the trade quantity; (f) the trade price; (g)
the security type; (h) the ticker symbol;
(i) the series/contract date; (j) whether
the trade is a purchase or a sale; (k) the
account type; (l) the allocation
indicator, if applicable; (m) the CMTA
indicator, if applicable; (n) the Give-Up
Clearing Member, if applicable; and (o)
whether the trade is an exchange-forphysical or block trade or any other
trade designated by the futures market
or security futures market reporting the
trade as a non-competitively executed
trade. In addition to the foregoing
information that is required as a
condition to OCC’s acceptance of the
confirmed trade, Rule 401(a)(2)(ii)
would provide that OCC may also
request certain optional trade
information that is not required as a
condition for acceptance.
sradovich on DSK3GMQ082PROD with NOTICES
Reasons the Uniform Acceptance and
Novation Timing for Nearly All
Confirmed Trades is Appropriate
OCC believes that using a uniform
approach for nearly all Confirmed
Trades regarding acceptance and
novation and reducing the complexity
of related provisions would provide
significantly greater clarity and
transparency in OCC’s legal framework
for Clearing Members and other
interested parties concerning the point
at which OCC does not have authority
to reject a transaction after it has been
properly submitted to and validated by
OCC. As described above, amending
OCC’s By-Laws and Rules to provide
that nearly all Confirmed Trades are
accepted and novated upon proper
submission functionally would not
change the time at which OCC becomes
obligated regarding such Confirmed
Trades because, upon proper
submission, OCC has no right today to
reject such transactions due to the
failure of a Purchasing Clearing Member
to pay any amount due to OCC at or
before the settlement time. OCC
generally does not collect margin with
respect to such Confirmed Trades until
9:00 a.m. Central the following business
26 OCC makes available to its participant
Exchanges and Clearing Members the complete list
of required and optional trade information in an
inbound reference guide for Exchange trades.
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day,27 and therefore OCC already faces
this same credit risk between the
acceptance of the Confirmed Trades and
the time that it collects margin from
Clearing Members. Accordingly, OCC
believes that moving the novation time
from the general Commencement Time
to earlier in the day as described
above—at the point of acceptance—
would not alter the credit risk OCC faces
with respect to such Confirmed Trades.
In addition, OCC would continue to
have the same authority that it does
today to address any credit risk as
necessary through intra-day margin
collection.28
OTC Options that are not Backloaded
OTC Options are not currently subject to
the general Commencement Time;
however, OCC believes that applying
the uniform acceptance and novation
time to those transactions is
appropriate. This is because under the
current approach, acceptance and the
Commencement Time both occur when
a report is made available to Clearing
Members within OCC’s clearing system,
and therefore this approach is already
consistent with the proposed approach
described herein. In practice, OCC
automatically makes a report available
to Clearing Members in its clearing
system regarding an OTC Option
provided that it is properly reported to
OCC, the contract passes OCC’s
validation process, and the contract is
not rejected. All of this is generally
completed immediately upon
submission and therefore OCC does not
believe there is any operational, risk
management, or other reason for
excluding OTC Options that are not
Backloaded OTC Options from the
proposed uniform acceptance and
novation timing.29
Proposed Exceptions to the Uniform
Acceptance and Novation Timing
For other categories of Confirmed
Trades that are not subject to the general
definition of Commencement Time,
OCC proposes to preserve the existing
structure under which OCC has
authority to reject the transactions even
after they are properly submitted for
clearing. An exception to the uniform
acceptance and novation timing would
be made for Confirmed Trades in futures
issued in exchange-for-physical
27 See Article I, Section 1.S.(16) of the By-Laws
(defining the term ‘‘settlement time’’ in respect of
a Clearing Member’s obligation to pay amounts
owed to OCC).
28 See OCC Rule 609 (addressing OCC’s authority
to require intra-day margin).
29 See Securities Exchange Act Release No. 68434
(December 14, 2012), 77 FR 75243 (December 19,
2012) (SR–OCC–2012–14 and AN–OCC–2012–01)
(discussing the trade submission mechanics for
OTC Options).
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transactions, block trades, or other
trades designated as non-competitively
executed. OCC believes that delayed
novation is still appropriate for such
non-competitively executed transactions
because there is a heightened risk that
non-competitive execution may cause
them to be effected at off-market prices,
which could lead to significant losses if
a Clearing Member defaults on the
related settlement obligations.30
As proposed, an exception to the
uniform acceptance and novation timing
would also be made for Confirmed
Trades that are Backloaded OTC
Options, which are defined as OTC
Options for which the premium
payment date is prior to the business
day on which the transaction is
submitted to OCC for clearing.31 OCC
believes an exception for Backloaded
OTC Options remains necessary because
of their ‘‘backloaded’’ nature, which
means that the premium payment has
already been made. In addition,
Backloaded OTC Options are subject to
being non-competitively executed and
therefore present the same heightened
settlement default risk that is discussed
above regarding other non-competitively
executed transactions. However, in
contrast to those other types of noncompetitively executed transactions,
OCC is not able to immediately validate
a Backloaded OTC Options transaction
or check its price reasonability upon
submission. Therefore, OCC believes it
remains appropriate to delay acceptance
and novation for these contracts until
the selling Clearing Member has met its
regular morning settlement obligations
on the business day following trade
reporting.
Provisional Information Regarding
Confirmed Trades
OCC proposes that its acceptance and
novation time would no longer be tied
to publication of a Daily Position Report
as OCC’s acceptance of a Confirmed
Trade would instead be reflected in the
position information that OCC makes
available to Clearing Members
30 OCC also proposes to add new Interpretation
and Policy .05 to provide that OCC will not treat
an EFP or block trade as a noncompetitively
executed trade subject to Article XII, Section 7 of
the By-Laws if the Exchange on which such trade
is executed has made representations satisfactory to
OCC that the Exchange has rules, policies or
procedures that require each EFP and block trade
that is submitted to OCC to be executed at a
reasonable price and that such price is validated by
the Exchange. This new Interpretation and Policy
to Rule 401 would reiterate current Interpretation
and Policy .04 to Article XII, Section 7 of the ByLaws to provide additional clarity in the Rules
around the acceptance and novation time for
competitively executed EFPs and block trades.
31 See Article I, Section 1.B.(1) of the OCC ByLaws.
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throughout the business day. OCC
therefore proposes to amend
Interpretation and Policy .01 to Rule 501
to: (1) Clarify that OCC makes updated
position data reflecting accepted and
novated trades available to its Clearing
Members throughout the day; and (2)
remove from that provision a statement
that Clearing Members must rely on the
Daily Position Report for definitive
information regarding their positions.
Hedge Loans and Market Loans
In addition to its clearance and
settlement of Confirmed Trades, OCC
also acts as a CCP for certain stock
lending transactions that are part of its
Stock Loan/Hedge Program and Market
Loan Program. OCC proposes to amend
its Stock Loan/Hedge Program and
Market Loan Program Rules to better
describe OCC’s process for accepting
Hedge Loans and Market Loans and to
appropriately harmonize certain
provisions governing each type of Stock
Loan.32
Hedge Loans are initiated as stock
lending transactions that are negotiated
and settled between Clearing Members
at The Depository Trust Company
(‘‘Depository’’) before they are reported
to OCC. Rule 2202(b) provides that OCC
must generally accept these stock
lending transactions upon receipt of a
report from the Depository that shows a
completed transaction.33 However, OCC
may reject a transaction if it determines
that it is: (1) Not in accordance with
OCC’s By-Laws or Rules; (2) one or both
account numbers specified are invalid
for Hedge Loans; or (3) the information
provided by the Depository contains
errors or omissions. Moreover, Rule
2202(b) provides that if OCC does not
affirmatively reject a reported
transaction by such a time as OCC is
authorized to specify from time to time
then the transaction is deemed accepted
as a Hedge Loan. Upon acceptance, OCC
becomes the lender to the Borrowing
Clearing Member and the borrower to
the Lending Clearing Member. Although
OCC has discretion during each
business day to make provisional
information available to Clearing
Members regarding their lending and
borrowing activity, only the Stock Loan
Mark to Market Activity Report is
recognized as providing definitive
Hedge Loan positions.34
OCC proposes to amend Rule 2202(b)
to clarify that OCC receives and accepts
32 See
OCC Rules 2202(b); 2202A(b), (c).
is not obligated to accept the stock lending
transactions of a Clearing Member that has been
suspended by the Depository. See OCC Rule
2210(a). The same condition applies regarding
Market Loans. See OCC Rule 2210A(a).
34 See Rule 2202, Interpretation and Policy .01.
33 OCC
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completed transaction information from
the Depository throughout the day and
would delete the statement that a
transaction is deemed accepted by a
particular cut off time if OCC does not
affirmatively notify Clearing Members of
a rejection. Rule 2202(b) would instead
state that OCC generally accepts
completed transactions reported to it
unless: (1) OCC is otherwise required to
reject a transaction because it is not in
accordance with the By-Laws or Rules;
(2) one or both account numbers
specified are invalid; or (3) the
information provided contains
unresolved errors or omissions. OCC
believes these changes would help
clarify the time at which Hedge Loans
are accepted and the specific
circumstances in which Hedge Loans
will be rejected. As described below, the
change would also ensure consistency
between parallel provisions in the Stock
Loan/Hedge Program and Market Loan
Program regarding the initiation process
that OCC believes should apply equally.
Finally, a reference to the Stock Loan
Market to Market Activity Report being
the only definitive statement of
positions would be deleted because
Hedge Loan positions would be
definitive upon acceptance in OCC’s
clearing system.
In connection with the Market Loan
Program initiation process, the
Depository also sends information to
OCC regarding completed stock lending
transactions. Rule 2202A(b) provides
that upon OCC’s receipt of an end of day
stock loan activity file from the
Depository OCC must accept the
transactions as Market Loans unless it is
required to reject them for the same
reasons described above concerning
Hedge Loans. The Rule further provides
that, upon OCC’s affirmative
acceptance, OCC becomes the lender to
the Borrowing Clearing Member and the
borrower to the Lending Clearing
Member.
As with the proposed changes to the
Stock Loan Hedge Program, OCC
proposes to clarify that OCC receives
and accepts completed transaction
information from the Depository
throughout the day. OCC also proposes
to delete a reference to affirmative
acceptance in Rule 2202A(b) because
the other proposed changes would
clarify that acceptance will generally
take place automatically unless OCC is
specifically required to reject
transactions due to the deficiencies
described above. A conforming change
would also be made in this regard in
Rule 2202A(c). References to the
definitive nature of the Stock Loan Mark
to Market Activity Report would be
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15185
deleted for the same reasons described
above regarding Hedge Loans.
Streamlining and Reorganization
As part of its continued efforts to
streamline its By-Laws and Rules, OCC
proposes to relocate certain provisions
from Article VI, Sections 4 through 8 of
the By-Laws to Chapter IV of the Rules.
This would promote a centralized
location for provisions that address
trade reporting and novation. OCC also
proposes to consolidate certain
provisions in Chapter IV of the Rules to
eliminate redundancy. These proposed
organizational changes are summarized
below.
Article VI, Section 4 of OCC’s ByLaws regarding a Purchasing Clearing
Member’s obligations with respect to a
Confirmed Trade would be relocated,
without amendment, to a new Rule 403.
Article VI, Section 5 of the By-Laws
regarding OCC’s obligations with
respect to a Confirmed Trade would be
amended, as described above, and
incorporated into existing Rule 401 and
new Rule 404. Article VI, Section 6 of
the By-Laws regarding the issuance of
cleared contracts would be amended as
described above and relocated to a new
Rule 405. Article VI, Section 7 of the ByLaws regarding the reporting of
confirmed trades would be relocated
and incorporated into Rule 401. More
specifically, Article VI, Section 7(b) of
the By-Laws would become Rule 401(e),
Section 7(c) would become Rule 401(f),
and Interpretation and Policy .01 to
Section 7 would become Interpretation
and Policy .03 to Rule 401. Article VI,
Section 8 of the By-Laws regarding
payments made to OCC would be
amended as described above and
relocated to new Rule 406. To
accommodate these new rules in
Chapter IV, current Rule 403 would be
renumbered as 407, and current Rule
405 would be renumbered as Rule 408.
Cross-references would also be updated
to reflect this renumbering throughout
Chapter IV of the Rules, as well as in
Article I, Section 1.G.(3) and (4), Article
VI, Section 2, and Article XVII, Sections
2(a) and 2(c)(1) of the By-Laws, and
Rules 504(e), 504(g), and 611(a).
Additionally, OCC proposes to delete
existing Rule 404 regarding the
reporting of confirmed trades in OTC
Options and to incorporate its substance
into Rule 401 in order create a more
centralized trade reporting rule. This
incorporation of Rule 404 into Rule 401
would require the addition of references
to OTC Trade Sources in Rule 401(a)
and (b), and the merger of language from
Rule 404(b) into Rule 401(b) and from
Rule 404(c) into Rule 401(d).
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Elimination of Dormant Products and
Rules
OCC proposes to delete certain
provisions from its By-Laws and Rules
that only apply to cross-rate foreign
currency options and flexibly-structured
index options denominated in a foreign
currency because OCC no longer clears
and settles such products. These
products, when they were still actively
cleared and settled, were subject to
delayed novation, so OCC believes
eliminating the rules governing these
products at this time would reduce
confusion related to the adoption of the
proposed changes described herein
concerning trade acceptance and
novation timing. Consequently, OCC
proposes to delete Articles XX and XXIII
of its By-Laws and Chapters XXI and
XXIV of its Rules, which govern each of
those products, respectively.
Additionally, OCC proposes to
eliminate all other references to such
products throughout its By-Laws and
Rules, including in Section 1(d) of
Article V, and Interpretation and Policy
.03 to Section 1 of Article V of the ByLaws and Rules 607, 1107(a)(3) and
1107(a)(4), as well as in the definitions
of Option Contract, Trading Currency
and Underlying Currency in Article I of
the By-Laws.
OCC also proposes to delete Rule 402
concerning the supplementary reporting
of Confirmed Trades. Under Rule 402,
in certain extraordinary circumstances,
OCC may in its discretion accept from
an Exchange after the cut-off time for
receiving Confirmed Trade information
for a particular business day (‘‘trade
date’’) supplementary Confirmed Trade
information reflecting the comparison of
additional trades executed on or before
the trade date that remained
unconfirmed at the cut-off time. Rule
402 was adopted at a time when OCC
received matched trade information
from Exchanges for a given trade date in
a single batch submission after the close
of the trading day.35 Under this old
process, trades that remained
unmatched when an Exchange prepared
its nightly trade tape to OCC were
omitted from the tape and, if a trade was
subsequently matched, the Exchange
reported the trade to OCC the following
night to be processed as if it had not
been executed until the date when it
was reported. Rule 402 was adopted to
accommodate the late submission of
trades that had not been matched in
time to be submitted on the Exchange’s
35 See Filing and Order Granting Accelerated
Approval of Proposed Rule Change of Options
Clearing Corporation, Securities Exchange Act
Release No. 21233 (August 10, 1984) (SR–OCC–84–
12).
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18:06 Apr 06, 2018
Jkt 244001
original trade tape, thereby allowing
those trades to be processed as if they
were submitted on their original trade
date. OCC is proposing to delete Rule
402 because it is no longer applicable to
OCC’s current clearing processes,
whereby OCC continuously receives
matched trade information from
Exchanges on a real-time basis.
(2) Statutory Basis
Section 17A(b)(3)(F) of the Act 36
requires, among other things, that the
rules of a clearing agency be designed to
foster cooperation and coordination
with persons engaged in the clearance
and settlement of securities
transactions, promote the prompt and
accurate clearance and settlement of
securities and derivatives transactions,
and, in general, protect investors and
the public interest. The proposed rule
change is intended to provide a clear
and uniform acceptance and novation
time for nearly all Confirmed Trades
and to clarify the acceptance and
novation timing regarding Stock Loans
by creating greater certainty regarding
the time at which novation occurs and
such Confirmed Trades and Stock Loans
may no longer be rejected by OCC.
Under the newly proposed uniform
acceptance time, OCC would deem
nearly all Confirmed Trades to be
accepted and simultaneously novated
when they are reported to OCC,
provided that the transaction
information reported to OCC by the
Exchange or OTC Trade Source first
passes OCC’s validation procedures and
is provided to OCC at such time as OCC
prescribes. In addition, the proposed
rule change also would eliminate
certain dormant rules that are no longer
applicable to OCC’s clearance and
settlement services and processes. As a
result, OCC believes that the proposed
rule change would provide greater
clarity and transparency to Clearing
Members, other users of OCC, and the
general public regarding OCC’s
processes for the reporting of
transactions, acceptance, and novation.
OCC therefore believes that the
proposed rule change is designed to
foster cooperation and coordination
with persons engaged in the clearance
and settlement of securities
transactions, promote the prompt and
accurate clearance and settlement of
securities and derivatives transactions,
and, in general, protect investors and
the public interest in accordance with
Section 17A(b)(3)(F) of the Act.37
In addition, Rule 17Ad–22(e)(1) 38
requires a covered clearing agency to
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to provide for a
well-founded, clear, transparent and
enforceable legal basis for each aspect of
its activities in all relevant jurisdictions.
First, the proposed rule change would
provide a clear and uniform time
regarding OCC’s acceptance and
novation for nearly all Confirmed
Trades and clarify OCC’s acceptance
and novation process regarding Stock
Loans. Achieving this outcome by,
among other things, eliminating the use
of the term Commencement Time and
the current structure in which users
must parse through a number of By-Law
and Rule provisions to identify the time
at which novation occurs would help
ensure that OCC has a well-founded,
clear, transparent, and enforceable legal
basis regarding the rights and
obligations of OCC and Clearing
Members in respect of the reporting of
transactions, acceptance, and novation.
Second, OCC also believes that the
proposal to streamline and reorganize
provisions concerning transaction
reporting, acceptance, and novation is
consistent with Rule 17Ad–22(e)(1) 39
because consolidating them in Chapter
IV of the Rules would promote
readability and therefore allow the
provisions to be more easily understood.
OCC believes this same purpose of
promoting clarity and readability would
also be furthered by eliminating By-Law
and Rule provisions that concern certain
dormant products that are no longer
cleared and settled by OCC or that
concern processes no longer supported
by OCC.
(B) Clearing Agency’s Statement on
Burden on Competition
Section 17A(b)(3)(I) of the Act 40
requires that the rules of a clearing
agency not impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. OCC does not
believe that the proposed rule change
would impact or impose any burden on
competition. The proposed rule change
is designed to provide more clarity and
transparency to, and therefore foster
cooperation and coordination among,
Clearing Members, other users of OCC,
and the general public regarding OCC’s
processes regarding the reporting of
transactions, acceptance and novation.
This proposed rule change would not
inhibit access to OCC’s services or
38 17
36 15
U.S.C. 78q–1(b)(3)(F).
37 Id.
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40 15
Fmt 4703
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CFR 240.17Ad–22(e)(1).
39 Id.
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09APN1
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disadvantage or favor any particular
user in relationship to another, and it
would be applied uniformly to all
Clearing Members. For the foregoing
reasons, OCC believes the proposed rule
change is in the public interest, would
be consistent with the requirements of
the Act applicable to clearing agencies
and would not impact or impose a
burden on competition.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants or Others
Written comments on the proposed
rule change were not and are not
intended to be solicited with respect to
the proposed rule change and none have
been received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be 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:
sradovich on DSK3GMQ082PROD 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–
OCC–2018–007 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–OCC–2018–007. 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
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18:06 Apr 06, 2018
Jkt 244001
internet website (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 website 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 such
filing also will be available for
inspection and copying at the principal
office of OCC and on OCC’s website at
https://www.theocc.com/about/
publications/bylaws.jsp.
All comments received will be posted
without change. Persons submitting
comments are cautioned that we do not
redact or edit personal identifying
information from comment submissions.
You should submit only information
that you wish to make available
publicly.
All submissions should refer to File
Number SR–OCC–2018–007 and should
be submitted on or before April 30,
2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.41
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–07111 Filed 4–6–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82985; File No. SR–NYSE–
2018–11]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Fees Charged in Connection With the
Filing of Supplemental Listing
Applications in Connection With the
Issuance of Convertible Securities
April 3, 2018.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on March
41 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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15187
22, 2018, New York Stock Exchange
LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. 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 proposes to amend its
fees charged in connection with the
filing of listing applications in relation
to the issuance of securities convertible
into or exchangeable or exercisable for
additional securities of a listed class of
common stock. The proposed rule
change is available on the Exchange’s
website at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
fees charged in connection with the
filing of listing applications in relation
to the issuance of securities convertible
into or exchangeable or exercisable for
additional securities of a listed class of
common stock (‘‘Convertible
Securities’’).
A listed company is required to
submit a supplemental listing
application (‘‘SLAP’’) prior to any
issuance of Convertible Securities. Each
time a listed company submits a SLAP
in connection with the issuance of
Convertible Securities, it must pay the
minimum fee of $10,000 provided for by
Section 902.03 of the Manual. The
Exchange, however, does not charge any
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]]>Agencies
[Federal Register Volume 83, Number 68 (Monday, April 9, 2018)]
[Notices]
[Pages 15181-15187]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-07111]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82983; File No. SR-OCC-2018-007]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change Related to The Options
Clearing Corporation's Trade Acceptance and Novation Rules
April 3, 2018.
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 March 23, 2018, The Options Clearing Corporation (``OCC'') 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 OCC. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
[[Page 15182]]
I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change by OCC concerns modifications to OCC's By-
Laws and Rules to: (1) Clarify the time at which OCC accepts and
novates the transactions that it clears; (2) streamline provisions in
the By-Laws and Rules related to acceptance, novation and trade
reporting; and (3) delete provisions that apply only to certain dormant
products that OCC no longer clears and settles or that are no longer
applicable to OCC's current clearing processes.
The proposed amendments to OCC's By-Laws and Rules can be found in
Exhibits 5A and 5B to the filing, respectively. Material proposed to be
added to OCC's By-Laws and Rules as currently in effect is marked by
underlining and material proposed to be deleted is marked with
strikethrough text. Because proposed Rules 403 through 406 in Chapter
IV are new and are based on provisions relocated from Article VI of
OCC's By-Laws, underlining and strikethrough text have been omitted
with respect to those rules in order to enhance their readability.
All terms with initial capitalization that are not otherwise
defined herein have the same meaning as set forth in the By-Laws and
Rules.\3\
---------------------------------------------------------------------------
\3\ OCC's By-Laws and Rules can be found on OCC's public
website: https://optionsclearing.com/about/publications/bylaws.jsp.
---------------------------------------------------------------------------
II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. 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),
(B), and (C) below, of the most significant aspects of these
statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
(1) Purpose
The purpose of this proposed rule change is to amend OCC's By-Laws
and Rules to: (1) Clarify the time at which OCC accepts and novates \4\
the transactions that it clears; (2) streamline provisions in the By-
Laws and Rules related to trade reporting and novation; and (3) delete
provisions that apply only to certain dormant products that OCC no
longer clears and settles or that are no longer applicable to OCC's
current clearing processes.
---------------------------------------------------------------------------
\4\ In this context, novation is the process through which OCC
is substituted as the buyer to the seller and the seller to the
buyer for each cleared contact.
---------------------------------------------------------------------------
Background
Acceptance and Novation Timing
Specifying a clear time at which OCC accepts transactions for
clearance and settlement is important to Clearing Members because that
is the time under OCC's By-Laws and Rules at which the following events
occur: (1) OCC is substituted through novation as the central
counterparty (``CCP'') to each Clearing Member that was an initial
party to the transaction; (2) the rights of the initial Clearing Member
parties to the transaction become solely as against OCC; and (3) OCC
becomes obligated to each Clearing Member in accordance with the By-
Laws and Rules.\5\ Acceptance of transactions is important to Clearing
Members because, among other things, settlement obligations associated
with transactions that OCC accepts and novates are generally guaranteed
by OCC based upon certain financial safeguards it maintains as a CCP
consistent with its responsibilities under the Act and relevant
regulations thereunder.\6\
---------------------------------------------------------------------------
\5\ See, e.g., Article VI, Section 5 of the By-Laws.
\6\ See generally 15 U.S.C. 78q-1; 17 CFR 240.17Ad-22.
---------------------------------------------------------------------------
Current Acceptance and Novation of Confirmed Trades
Under OCC's current By-Laws and Rules, a user must parse through a
number of definitions and provisions in various locations to identify
that time at which acceptance and novation occur. The term Confirmed
Trade is defined in OCC's By-Laws to include all of the products for
which OCC currently provides clearance and settlement services, with
the exception of certain Stock Loan \7\ transactions. Under OCC's
current By-Laws, a Confirmed Trade \8\ is novated upon OCC's
acceptance, but acceptance is not deemed to occur until a designated
Commencement Time. Commencement Time is defined differently for
different products that meet the definition of a Confirmed Trade, but
Article VI, Section 5 of the By-Laws (regarding OCC's obligations)
generally defines it as the time at which OCC makes available to
Clearing Members a Daily Position Report reflecting the Confirmed
Trade.\9\ Pursuant to Article VI, Section 7 of the By-Laws (regarding
the reporting of Confirmed Trades) this acceptance is subject to the
condition that the Exchange or OTC Trade Source on which the
transaction occurred has reported to OCC, during such times as OCC has
prescribed, certain information regarding the Confirmed Trade and that
such information passes OCC's initial validation checks.
---------------------------------------------------------------------------
\7\ See Article I, Section 1.S.(21) of the By-Laws. The term
Stock Loan may refer to either a Hedge Loan that is part of OCC's
Stock Loan/Hedge Program or a Market Loan that is part of OCC's
Market Loan Program. Matters regarding the acceptance and novation
of these products is addressed separately below.
\8\ Under OCC's By-Laws, a Confirmed Trade is defined as ``a
transaction for the purchase, writing, or sale of a cleared
contract, or for the closing out of a long or short position in a
cleared contract, that is (i) effected on or through the facilities
of an Exchange and submitted to the Corporation for clearance or
(ii) affirmed through the facilities of an OTC Trade Source and
submitted to the Corporation for clearance.''
\9\ This typically occurs at the end of each business day.
---------------------------------------------------------------------------
Under Article VI, Section 8 of the By-Laws, OCC generally has no
right (other than regarding certain types of Confirmed Trades discussed
below) to reject a Confirmed Trade due to the failure of the Purchasing
Clearing Member to pay any amount due to OCC at or before the
settlement time. This means that transactions in most products that are
Confirmed Trades will inevitably be accepted for clearing and novated
at the Commencement Time simply due to the passage of time.\10\
Therefore, most Confirmed Trades are functionally novated under the
current By-Laws and Rules upon proper submission to OCC for clearing.
---------------------------------------------------------------------------
\10\ An Exchange or OTC Trade Source, however, may instruct OCC
to disregard a transaction that it previously reported as a
Confirmed Trade ``because of a subsequent determination that (i) the
trade information submitted by the Purchasing Clearing Member and
Selling Clearing Member did not agree, (ii) the trade information
did not contain all the information required by the Corporation as
set forth in the By-Laws and Rules, or (iii) new or revised trade
information was required to properly clear the transaction.'' See
Article VI, Section 7 of the OCC By-Laws. This authority would be
preserved and relocated into OCC's Rules in connection with the
proposed changes described herein.
---------------------------------------------------------------------------
Different Commencement Times and Rejection Rights for Certain Confirmed
Trades
Certain categories of Confirmed Trades, however, are not subject to
the general Commencement Time described above, and OCC retains certain
rights to reject such transactions. Specifically, Article VI, Section 5
of the By-Laws excludes the products described below from the general
Commencement Time and alternate definitions of Commencement Time are
set forth as follows:
[[Page 15183]]
(1) Futures issued in exchange-for-physical transactions,\11\ block
trades,\12\ or other trades designated as non-competitively executed--
the time after the transaction is reported to OCC that OCC receives the
first variation settlement payment; \13\
---------------------------------------------------------------------------
\11\ An exchange-for-physical transaction (or ``EFP'') is a
transaction between two parties in which a futures contract on a
commodity or security is exchanged for the actual physical good.
\12\ A block trade is a trade involving a large number of shares
being traded at an arranged price between parties, outside of the
open markets, in order to lessen the impact of such a large trade
being made public.
\13\ See Article XII, Section 7 of the OCC By-Laws.
---------------------------------------------------------------------------
(2) Cross-rate FX options and FX index options--the time that is
three hours following the settlement time of the Confirmed Trade in
which such contract was purchased; \14\ and
---------------------------------------------------------------------------
\14\ See Articles XX, Section 1 and XXIII, Section 1 of the OCC
By-Laws.
---------------------------------------------------------------------------
(3) OTC Options (other than Backloaded OTC Options)--the time when
a report of OCC's acceptance is made available to Clearing Members
through OCC's clearing system.\15\
---------------------------------------------------------------------------
\15\ See Article VI, Section 5 of the OCC By-Laws.
---------------------------------------------------------------------------
For Backloaded OTC Options, the transaction is not accepted until
the Selling Clearing Member has met its regular morning settlement
obligation on the business day following the reporting of the trade to
OCC.\16\
---------------------------------------------------------------------------
\16\ Id.
---------------------------------------------------------------------------
In addition to the separate Commencement Times for these types of
Confirmed Trades, OCC also currently has certain authority to reject
such trades due to the failure of the Purchasing Clearing Member to pay
an amount due to OCC at or before the applicable settlement time.\17\
In contrast to most other types of Confirmed Trades, this means that
OCC continues to have authority to reject these transactions even after
they are properly submitted for clearing. OCC's authority to reject
these types of Confirmed Trades arises under the following
circumstances:
---------------------------------------------------------------------------
\17\ See generally Article VI, Section 8 of the OCC By-Laws
identifying these exceptions.
---------------------------------------------------------------------------
(1) Futures issued in exchange-for-physical transactions, block
trades, or other trades designated as non-competitively executed--in
the event OCC fails to receive any variation payment due in the
accounts of the Clearing Members;\18\
---------------------------------------------------------------------------
\18\ See Article XII, Section 7 of the By-Laws.
---------------------------------------------------------------------------
(2) Cross-rate FX options and FX index options--in the event OCC
fails to receive from the Purchasing Clearing Member premiums
denominated in the proper trading currency in the account in which the
transaction is effected; \19\ and
---------------------------------------------------------------------------
\19\ See Article XX, Section 5, Article XXIII, Section 7 of the
By-Laws.
---------------------------------------------------------------------------
(3) Backloaded OTC Options--in the event the Selling Clearing
Member does not meet its regular morning settlement obligation on the
business day following the reporting of the trade to OCC.\20\
---------------------------------------------------------------------------
\20\ See Article VI, Section 8 of the By-Laws. In addition, OCC
will not accept a Backloaded OTC Option for clearing if OCC receives
it from the OTC Trade Source after 4 p.m. Central on the business
day that is four business days prior to its expiration.
---------------------------------------------------------------------------
Proposed Changes to Acceptance and Novation Rules
Proposed Uniform Acceptance and Novation Timing for Nearly All
Confirmed Trades
To provide greater certainty and clarity to Clearing Members and
other interested parties regarding the acceptance and novation timing
for transactions that OCC clears and settles, OCC is proposing to amend
the substance of Article VI, Section 5 of the By-Laws \21\ to set forth
a uniform acceptance and novation time for nearly all Confirmed Trades.
As described in more detail below, OCC would retain exceptions from the
uniform acceptance and novation time for Confirmed Trades in Backloaded
OTC Options and Confirmed Trades in futures issued in exchange-for-
physical transactions, block trades, or other trades designated as non-
competitively executed.
---------------------------------------------------------------------------
\21\ As described below under the heading Reorganization, OCC
also proposes to relocate the provisions currently in Article VI,
Section 5 of the By-Laws to Rules 401 and 404.
---------------------------------------------------------------------------
To accomplish this, OCC proposes to eliminate the concept of
Commencement Time and instead deem nearly all Confirmed Trades to be
accepted and simultaneously novated when they are reported to OCC and
the related position information has been recorded in OCC's clearing
system (which occurs on a real-time basis).\22\ This would, however, be
subject to the condition that the required transaction information
reported to OCC by the Exchange or OTC Trade Source first passes OCC's
validation procedures \23\ and is provided to OCC at such time as OCC
prescribes. OCC believes this change provides a more clear indication
of the point after which OCC does not have authority to reject such
transactions for clearing.\24\ Eliminating the concept of Commencement
Time also necessitates the deletion of the term from the defined terms
that appear in Article I, Section 1 of the By-Laws and replacing all
references to Commencement Time with references to the time at which
OCC accepts a transaction for clearing. This change requires amendments
to OCC's By-Laws, specifically, amendments to the Article I definition
of ``American; American-style,'' Article VI, Sections 5 and 6,\25\
Section 12 of Article VI, and Section 7 of Article XII.
---------------------------------------------------------------------------
\22\ OCC notes that upon acceptance and recording of position
information in OCC's ENCORE clearing system, Clearing Members have
the ability to see the trades they are responsible for via position
information screens in the ENCORE system and through real-time
messaging.
\23\ All inbound trades to OCC are subject to coded validation
of the required fields for trades. These fields contain the critical
details of the trade. These details include, but are not limited to,
the trade source, symbol, expiration, strike, call or put, quantity,
price, and Clearing Member details of both sides of the trade.
\24\ As described above, an Exchange or OTC Trade Source would
continue to have the authority to instruct OCC to disregard a
Confirmed Trade. See supra 10.
\25\ As described in more detail below, OCC proposes to relocate
Article VI, Sections 5 and 6 to Rules 401, 404 and 405 to help
streamline and reorganize provisions addressing trade reporting and
novation.
---------------------------------------------------------------------------
As part of this proposed rule change, OCC also proposes to clarify
the trade information required to be submitted by the participant
Exchange to OCC as a condition to acceptance and novation. For options
transactions, Rule 401(a)(1)(i) would provide that these terms include:
(a) The identity of the Purchasing Clearing Member and Writing Clearing
Member to the transaction; (b) the clearing date; (c) the transaction
time; (d) the trade source; (e) the trade quantity; (f) the trade
price; (g) the security type; (h) the ticker symbol; (i) the series/
contract date; (j) whether the trade is a put or a call; (k) the strike
price; (l) whether the trade is a purchase or a sale; (m) the account
type; (n) the allocation indicator, if applicable; (o) the CMTA
indicator, if applicable; (p) the Give-Up Clearing Member, if
applicable; (q) the trade type, including, in the case of futures
options, whether the transaction is a block trade, exchange-for-
physical, or any other trade designated by the futures market or
security futures market reporting the trade as a non-competitively
executed trade; (r) in the case of OTC options transactions in a
securities customers' account, a unique customer ID for the customer
for whom the trade was executed; and (s) in the case of OTC options,
such other variable terms as provided in Section 6 of Article XVII of
the By-Laws. In addition to the foregoing information that is required
as a condition to OCC's acceptance of the confirmed trade, Rule
401(a)(1)(ii) would provide that OCC may also request certain optional
trade
[[Page 15184]]
information that is not required as a condition for acceptance.\26\
---------------------------------------------------------------------------
\26\ OCC makes available to its participant Exchanges and
Clearing Members the complete list of required and optional trade
information in an inbound reference guide for Exchange trades.
---------------------------------------------------------------------------
For futures transactions, Rule 401(a)(2)(i) would provide that the
required terms for acceptance and novation include: (a) The identity of
the Purchasing Clearing Member and the Selling Clearing Member to the
transaction; (b) the clearing date; (c) the transaction time; (d) the
trade source; (e) the trade quantity; (f) the trade price; (g) the
security type; (h) the ticker symbol; (i) the series/contract date; (j)
whether the trade is a purchase or a sale; (k) the account type; (l)
the allocation indicator, if applicable; (m) the CMTA indicator, if
applicable; (n) the Give-Up Clearing Member, if applicable; and (o)
whether the trade is an exchange-for-physical or block trade or any
other trade designated by the futures market or security futures market
reporting the trade as a non-competitively executed trade. In addition
to the foregoing information that is required as a condition to OCC's
acceptance of the confirmed trade, Rule 401(a)(2)(ii) would provide
that OCC may also request certain optional trade information that is
not required as a condition for acceptance.
Reasons the Uniform Acceptance and Novation Timing for Nearly All
Confirmed Trades is Appropriate
OCC believes that using a uniform approach for nearly all Confirmed
Trades regarding acceptance and novation and reducing the complexity of
related provisions would provide significantly greater clarity and
transparency in OCC's legal framework for Clearing Members and other
interested parties concerning the point at which OCC does not have
authority to reject a transaction after it has been properly submitted
to and validated by OCC. As described above, amending OCC's By-Laws and
Rules to provide that nearly all Confirmed Trades are accepted and
novated upon proper submission functionally would not change the time
at which OCC becomes obligated regarding such Confirmed Trades because,
upon proper submission, OCC has no right today to reject such
transactions due to the failure of a Purchasing Clearing Member to pay
any amount due to OCC at or before the settlement time. OCC generally
does not collect margin with respect to such Confirmed Trades until
9:00 a.m. Central the following business day,\27\ and therefore OCC
already faces this same credit risk between the acceptance of the
Confirmed Trades and the time that it collects margin from Clearing
Members. Accordingly, OCC believes that moving the novation time from
the general Commencement Time to earlier in the day as described
above--at the point of acceptance--would not alter the credit risk OCC
faces with respect to such Confirmed Trades. In addition, OCC would
continue to have the same authority that it does today to address any
credit risk as necessary through intra-day margin collection.\28\
---------------------------------------------------------------------------
\27\ See Article I, Section 1.S.(16) of the By-Laws (defining
the term ``settlement time'' in respect of a Clearing Member's
obligation to pay amounts owed to OCC).
\28\ See OCC Rule 609 (addressing OCC's authority to require
intra-day margin).
---------------------------------------------------------------------------
OTC Options that are not Backloaded OTC Options are not currently
subject to the general Commencement Time; however, OCC believes that
applying the uniform acceptance and novation time to those transactions
is appropriate. This is because under the current approach, acceptance
and the Commencement Time both occur when a report is made available to
Clearing Members within OCC's clearing system, and therefore this
approach is already consistent with the proposed approach described
herein. In practice, OCC automatically makes a report available to
Clearing Members in its clearing system regarding an OTC Option
provided that it is properly reported to OCC, the contract passes OCC's
validation process, and the contract is not rejected. All of this is
generally completed immediately upon submission and therefore OCC does
not believe there is any operational, risk management, or other reason
for excluding OTC Options that are not Backloaded OTC Options from the
proposed uniform acceptance and novation timing.\29\
---------------------------------------------------------------------------
\29\ See Securities Exchange Act Release No. 68434 (December 14,
2012), 77 FR 75243 (December 19, 2012) (SR-OCC-2012-14 and AN-OCC-
2012-01) (discussing the trade submission mechanics for OTC
Options).
---------------------------------------------------------------------------
Proposed Exceptions to the Uniform Acceptance and Novation Timing
For other categories of Confirmed Trades that are not subject to
the general definition of Commencement Time, OCC proposes to preserve
the existing structure under which OCC has authority to reject the
transactions even after they are properly submitted for clearing. An
exception to the uniform acceptance and novation timing would be made
for Confirmed Trades in futures issued in exchange-for-physical
transactions, block trades, or other trades designated as non-
competitively executed. OCC believes that delayed novation is still
appropriate for such non-competitively executed transactions because
there is a heightened risk that non-competitive execution may cause
them to be effected at off-market prices, which could lead to
significant losses if a Clearing Member defaults on the related
settlement obligations.\30\
---------------------------------------------------------------------------
\30\ OCC also proposes to add new Interpretation and Policy .05
to provide that OCC will not treat an EFP or block trade as a
noncompetitively executed trade subject to Article XII, Section 7 of
the By-Laws if the Exchange on which such trade is executed has made
representations satisfactory to OCC that the Exchange has rules,
policies or procedures that require each EFP and block trade that is
submitted to OCC to be executed at a reasonable price and that such
price is validated by the Exchange. This new Interpretation and
Policy to Rule 401 would reiterate current Interpretation and Policy
.04 to Article XII, Section 7 of the By-Laws to provide additional
clarity in the Rules around the acceptance and novation time for
competitively executed EFPs and block trades.
---------------------------------------------------------------------------
As proposed, an exception to the uniform acceptance and novation
timing would also be made for Confirmed Trades that are Backloaded OTC
Options, which are defined as OTC Options for which the premium payment
date is prior to the business day on which the transaction is submitted
to OCC for clearing.\31\ OCC believes an exception for Backloaded OTC
Options remains necessary because of their ``backloaded'' nature, which
means that the premium payment has already been made. In addition,
Backloaded OTC Options are subject to being non-competitively executed
and therefore present the same heightened settlement default risk that
is discussed above regarding other non-competitively executed
transactions. However, in contrast to those other types of non-
competitively executed transactions, OCC is not able to immediately
validate a Backloaded OTC Options transaction or check its price
reasonability upon submission. Therefore, OCC believes it remains
appropriate to delay acceptance and novation for these contracts until
the selling Clearing Member has met its regular morning settlement
obligations on the business day following trade reporting.
---------------------------------------------------------------------------
\31\ See Article I, Section 1.B.(1) of the OCC By-Laws.
---------------------------------------------------------------------------
Provisional Information Regarding Confirmed Trades
OCC proposes that its acceptance and novation time would no longer
be tied to publication of a Daily Position Report as OCC's acceptance
of a Confirmed Trade would instead be reflected in the position
information that OCC makes available to Clearing Members
[[Page 15185]]
throughout the business day. OCC therefore proposes to amend
Interpretation and Policy .01 to Rule 501 to: (1) Clarify that OCC
makes updated position data reflecting accepted and novated trades
available to its Clearing Members throughout the day; and (2) remove
from that provision a statement that Clearing Members must rely on the
Daily Position Report for definitive information regarding their
positions.
Hedge Loans and Market Loans
In addition to its clearance and settlement of Confirmed Trades,
OCC also acts as a CCP for certain stock lending transactions that are
part of its Stock Loan/Hedge Program and Market Loan Program. OCC
proposes to amend its Stock Loan/Hedge Program and Market Loan Program
Rules to better describe OCC's process for accepting Hedge Loans and
Market Loans and to appropriately harmonize certain provisions
governing each type of Stock Loan.\32\
---------------------------------------------------------------------------
\32\ See OCC Rules 2202(b); 2202A(b), (c).
---------------------------------------------------------------------------
Hedge Loans are initiated as stock lending transactions that are
negotiated and settled between Clearing Members at The Depository Trust
Company (``Depository'') before they are reported to OCC. Rule 2202(b)
provides that OCC must generally accept these stock lending
transactions upon receipt of a report from the Depository that shows a
completed transaction.\33\ However, OCC may reject a transaction if it
determines that it is: (1) Not in accordance with OCC's By-Laws or
Rules; (2) one or both account numbers specified are invalid for Hedge
Loans; or (3) the information provided by the Depository contains
errors or omissions. Moreover, Rule 2202(b) provides that if OCC does
not affirmatively reject a reported transaction by such a time as OCC
is authorized to specify from time to time then the transaction is
deemed accepted as a Hedge Loan. Upon acceptance, OCC becomes the
lender to the Borrowing Clearing Member and the borrower to the Lending
Clearing Member. Although OCC has discretion during each business day
to make provisional information available to Clearing Members regarding
their lending and borrowing activity, only the Stock Loan Mark to
Market Activity Report is recognized as providing definitive Hedge Loan
positions.\34\
---------------------------------------------------------------------------
\33\ OCC is not obligated to accept the stock lending
transactions of a Clearing Member that has been suspended by the
Depository. See OCC Rule 2210(a). The same condition applies
regarding Market Loans. See OCC Rule 2210A(a).
\34\ See Rule 2202, Interpretation and Policy .01.
---------------------------------------------------------------------------
OCC proposes to amend Rule 2202(b) to clarify that OCC receives and
accepts completed transaction information from the Depository
throughout the day and would delete the statement that a transaction is
deemed accepted by a particular cut off time if OCC does not
affirmatively notify Clearing Members of a rejection. Rule 2202(b)
would instead state that OCC generally accepts completed transactions
reported to it unless: (1) OCC is otherwise required to reject a
transaction because it is not in accordance with the By-Laws or Rules;
(2) one or both account numbers specified are invalid; or (3) the
information provided contains unresolved errors or omissions. OCC
believes these changes would help clarify the time at which Hedge Loans
are accepted and the specific circumstances in which Hedge Loans will
be rejected. As described below, the change would also ensure
consistency between parallel provisions in the Stock Loan/Hedge Program
and Market Loan Program regarding the initiation process that OCC
believes should apply equally. Finally, a reference to the Stock Loan
Market to Market Activity Report being the only definitive statement of
positions would be deleted because Hedge Loan positions would be
definitive upon acceptance in OCC's clearing system.
In connection with the Market Loan Program initiation process, the
Depository also sends information to OCC regarding completed stock
lending transactions. Rule 2202A(b) provides that upon OCC's receipt of
an end of day stock loan activity file from the Depository OCC must
accept the transactions as Market Loans unless it is required to reject
them for the same reasons described above concerning Hedge Loans. The
Rule further provides that, upon OCC's affirmative acceptance, OCC
becomes the lender to the Borrowing Clearing Member and the borrower to
the Lending Clearing Member.
As with the proposed changes to the Stock Loan Hedge Program, OCC
proposes to clarify that OCC receives and accepts completed transaction
information from the Depository throughout the day. OCC also proposes
to delete a reference to affirmative acceptance in Rule 2202A(b)
because the other proposed changes would clarify that acceptance will
generally take place automatically unless OCC is specifically required
to reject transactions due to the deficiencies described above. A
conforming change would also be made in this regard in Rule 2202A(c).
References to the definitive nature of the Stock Loan Mark to Market
Activity Report would be deleted for the same reasons described above
regarding Hedge Loans.
Streamlining and Reorganization
As part of its continued efforts to streamline its By-Laws and
Rules, OCC proposes to relocate certain provisions from Article VI,
Sections 4 through 8 of the By-Laws to Chapter IV of the Rules. This
would promote a centralized location for provisions that address trade
reporting and novation. OCC also proposes to consolidate certain
provisions in Chapter IV of the Rules to eliminate redundancy. These
proposed organizational changes are summarized below.
Article VI, Section 4 of OCC's By-Laws regarding a Purchasing
Clearing Member's obligations with respect to a Confirmed Trade would
be relocated, without amendment, to a new Rule 403. Article VI, Section
5 of the By-Laws regarding OCC's obligations with respect to a
Confirmed Trade would be amended, as described above, and incorporated
into existing Rule 401 and new Rule 404. Article VI, Section 6 of the
By-Laws regarding the issuance of cleared contracts would be amended as
described above and relocated to a new Rule 405. Article VI, Section 7
of the By-Laws regarding the reporting of confirmed trades would be
relocated and incorporated into Rule 401. More specifically, Article
VI, Section 7(b) of the By-Laws would become Rule 401(e), Section 7(c)
would become Rule 401(f), and Interpretation and Policy .01 to Section
7 would become Interpretation and Policy .03 to Rule 401. Article VI,
Section 8 of the By-Laws regarding payments made to OCC would be
amended as described above and relocated to new Rule 406. To
accommodate these new rules in Chapter IV, current Rule 403 would be
renumbered as 407, and current Rule 405 would be renumbered as Rule
408. Cross-references would also be updated to reflect this renumbering
throughout Chapter IV of the Rules, as well as in Article I, Section
1.G.(3) and (4), Article VI, Section 2, and Article XVII, Sections 2(a)
and 2(c)(1) of the By-Laws, and Rules 504(e), 504(g), and 611(a).
Additionally, OCC proposes to delete existing Rule 404 regarding
the reporting of confirmed trades in OTC Options and to incorporate its
substance into Rule 401 in order create a more centralized trade
reporting rule. This incorporation of Rule 404 into Rule 401 would
require the addition of references to OTC Trade Sources in Rule 401(a)
and (b), and the merger of language from Rule 404(b) into Rule 401(b)
and from Rule 404(c) into Rule 401(d).
[[Page 15186]]
Elimination of Dormant Products and Rules
OCC proposes to delete certain provisions from its By-Laws and
Rules that only apply to cross-rate foreign currency options and
flexibly-structured index options denominated in a foreign currency
because OCC no longer clears and settles such products. These products,
when they were still actively cleared and settled, were subject to
delayed novation, so OCC believes eliminating the rules governing these
products at this time would reduce confusion related to the adoption of
the proposed changes described herein concerning trade acceptance and
novation timing. Consequently, OCC proposes to delete Articles XX and
XXIII of its By-Laws and Chapters XXI and XXIV of its Rules, which
govern each of those products, respectively. Additionally, OCC proposes
to eliminate all other references to such products throughout its By-
Laws and Rules, including in Section 1(d) of Article V, and
Interpretation and Policy .03 to Section 1 of Article V of the By-Laws
and Rules 607, 1107(a)(3) and 1107(a)(4), as well as in the definitions
of Option Contract, Trading Currency and Underlying Currency in Article
I of the By-Laws.
OCC also proposes to delete Rule 402 concerning the supplementary
reporting of Confirmed Trades. Under Rule 402, in certain extraordinary
circumstances, OCC may in its discretion accept from an Exchange after
the cut-off time for receiving Confirmed Trade information for a
particular business day (``trade date'') supplementary Confirmed Trade
information reflecting the comparison of additional trades executed on
or before the trade date that remained unconfirmed at the cut-off time.
Rule 402 was adopted at a time when OCC received matched trade
information from Exchanges for a given trade date in a single batch
submission after the close of the trading day.\35\ Under this old
process, trades that remained unmatched when an Exchange prepared its
nightly trade tape to OCC were omitted from the tape and, if a trade
was subsequently matched, the Exchange reported the trade to OCC the
following night to be processed as if it had not been executed until
the date when it was reported. Rule 402 was adopted to accommodate the
late submission of trades that had not been matched in time to be
submitted on the Exchange's original trade tape, thereby allowing those
trades to be processed as if they were submitted on their original
trade date. OCC is proposing to delete Rule 402 because it is no longer
applicable to OCC's current clearing processes, whereby OCC
continuously receives matched trade information from Exchanges on a
real-time basis.
---------------------------------------------------------------------------
\35\ See Filing and Order Granting Accelerated Approval of
Proposed Rule Change of Options Clearing Corporation, Securities
Exchange Act Release No. 21233 (August 10, 1984) (SR-OCC-84-12).
---------------------------------------------------------------------------
(2) Statutory Basis
Section 17A(b)(3)(F) of the Act \36\ requires, among other things,
that the rules of a clearing agency be designed to foster cooperation
and coordination with persons engaged in the clearance and settlement
of securities transactions, promote the prompt and accurate clearance
and settlement of securities and derivatives transactions, and, in
general, protect investors and the public interest. The proposed rule
change is intended to provide a clear and uniform acceptance and
novation time for nearly all Confirmed Trades and to clarify the
acceptance and novation timing regarding Stock Loans by creating
greater certainty regarding the time at which novation occurs and such
Confirmed Trades and Stock Loans may no longer be rejected by OCC.
Under the newly proposed uniform acceptance time, OCC would deem nearly
all Confirmed Trades to be accepted and simultaneously novated when
they are reported to OCC, provided that the transaction information
reported to OCC by the Exchange or OTC Trade Source first passes OCC's
validation procedures and is provided to OCC at such time as OCC
prescribes. In addition, the proposed rule change also would eliminate
certain dormant rules that are no longer applicable to OCC's clearance
and settlement services and processes. As a result, OCC believes that
the proposed rule change would provide greater clarity and transparency
to Clearing Members, other users of OCC, and the general public
regarding OCC's processes for the reporting of transactions,
acceptance, and novation. OCC therefore believes that the proposed rule
change is designed to foster cooperation and coordination with persons
engaged in the clearance and settlement of securities transactions,
promote the prompt and accurate clearance and settlement of securities
and derivatives transactions, and, in general, protect investors and
the public interest in accordance with Section 17A(b)(3)(F) of the
Act.\37\
---------------------------------------------------------------------------
\36\ 15 U.S.C. 78q-1(b)(3)(F).
\37\ Id.
---------------------------------------------------------------------------
In addition, Rule 17Ad-22(e)(1) \38\ requires a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to provide for a well-founded,
clear, transparent and enforceable legal basis for each aspect of its
activities in all relevant jurisdictions. First, the proposed rule
change would provide a clear and uniform time regarding OCC's
acceptance and novation for nearly all Confirmed Trades and clarify
OCC's acceptance and novation process regarding Stock Loans. Achieving
this outcome by, among other things, eliminating the use of the term
Commencement Time and the current structure in which users must parse
through a number of By-Law and Rule provisions to identify the time at
which novation occurs would help ensure that OCC has a well-founded,
clear, transparent, and enforceable legal basis regarding the rights
and obligations of OCC and Clearing Members in respect of the reporting
of transactions, acceptance, and novation. Second, OCC also believes
that the proposal to streamline and reorganize provisions concerning
transaction reporting, acceptance, and novation is consistent with Rule
17Ad-22(e)(1) \39\ because consolidating them in Chapter IV of the
Rules would promote readability and therefore allow the provisions to
be more easily understood. OCC believes this same purpose of promoting
clarity and readability would also be furthered by eliminating By-Law
and Rule provisions that concern certain dormant products that are no
longer cleared and settled by OCC or that concern processes no longer
supported by OCC.
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\38\ 17 CFR 240.17Ad-22(e)(1).
\39\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
Section 17A(b)(3)(I) of the Act \40\ requires that the rules of a
clearing agency not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act. OCC does not
believe that the proposed rule change would impact or impose any burden
on competition. The proposed rule change is designed to provide more
clarity and transparency to, and therefore foster cooperation and
coordination among, Clearing Members, other users of OCC, and the
general public regarding OCC's processes regarding the reporting of
transactions, acceptance and novation. This proposed rule change would
not inhibit access to OCC's services or
[[Page 15187]]
disadvantage or favor any particular user in relationship to another,
and it would be applied uniformly to all Clearing Members. For the
foregoing reasons, OCC believes the proposed rule change is in the
public interest, would be consistent with the requirements of the Act
applicable to clearing agencies and would not impact or impose a burden
on competition.
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\40\ 15 U.S.C. 78q-1(b)(3)(I).
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others
Written comments on the proposed rule change were not and are not
intended to be solicited with respect to the proposed rule change and
none have been received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be 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:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-OCC-2018-007 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2018-007. 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 website (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 website 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 such filing also will be available for inspection
and copying at the principal office of OCC and on OCC's website at
https://www.theocc.com/about/publications/bylaws.jsp.
All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly.
All submissions should refer to File Number SR-OCC-2018-007 and
should be submitted on or before April 30, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
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\41\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-07111 Filed 4-6-18; 8:45 am]
BILLING CODE 8011-01-P
