[Federal Register Volume 59, Number 42 (Thursday, March 3, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4871]


[[Page Unknown]]

[Federal Register: March 3, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33666; File Nos. SR-OCC-94-01 and SR-ICC-94-01]

 

Self-Regulatory Organizations; The Options Clearing Corporation 
and The Intermarket Clearing Corporation; Notice of Filing of Proposed 
Rule Changes Relating to the Cross-Netting of Foreign Currency Options 
and Futures

February 23, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on January 18, 1994, The 
Options Clearing Corporation (``OCC'') and The Intermarket Clearing 
Corporation (``ICC'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule changes (File Nos. SR-OCC-94-01 and 
SR-ICC-94-01) as described in Items I, II, and III below, which Items 
have been prepared primarily by OCC and ICC, self-regulatory 
organizations (``SROs''). The Commission is publishing this notice to 
solicit comments on the proposed rule changes from interested persons.
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    \1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organizations' Statement of the Terms of Substance 
of the Proposed Rule Changes

    The proposed rule changes will eliminate the ability of a clearing 
member of both OCC and ICC (``joint clearing member'') that has elected 
to cross-net its obligations arising from foreign currency options and 
futures to select ICC as its designated clearing organization (``DCO'') 
in settling such obligations. Under the proposed rule changes, only OCC 
will be able to act as the DCO in settling such obligations.

II. Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

    In its filing with the Commission, OCC and ICC have included 
statements concerning the purpose of and basis for the proposed rule 
changes and discussed any comments they received on the proposed rule 
changes. The text of these statements may be examined at the places 
specified in Item IV below. OCC and ICC have prepared summaries, set 
forth in sections A, B, and C below, of the most significant aspects of 
such statements.

A. Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

1. Cross-Netting Under Current Rules
    Under OCC and ICC rules, a joint clearing member may elect to 
cross-net its OCC exercise and assignment settlement obligations in 
OCC-cleared foreign currency options (``OCC obligations'') with its 
settlement obligations in ICC-cleared foreign currency futures (``ICC 
obligations'') on the same foreign currency. Cross-netting occurs when 
OCC obligations settle on a date that also is a delivery date for ICC 
obligations. Because such dates coincide only one day each month, 
cross-netting is performed only one day each month.
    Currently, a joint clearing member that has elected to settle by 
cross-netting may select either OCC or ICC as its DCO and will settle 
its cross-netted obligations with its DCO in accordance with the rules 
of the DCO. (OCC and ICC have virtually identical rules regarding the 
settlement of foreign currency obligations.) The DCO, in turn, performs 
its ordinary clearance and settlement activities and acts as agent for 
the opposite clearing organization in settling the cross-netted 
obligations.\2\
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    \2\For a more detailed description of cross-netting, refer to 
Securities Exchange Act Release No. 24781 (August 6, 1987), 53 FR 
30268 [File No. SR-OCC-86-14].
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    The agreement of one clearing organization to act as agent for the 
other is contained in the Mutual Agency Agreement for Foreign Currency 
Settlement (``Mutual Agency Agreement'') between OCC and ICC. The 
Mutual Agency Agreement sets forth the rights and obligations of OCC 
and ICC in effecting cross-netted settlements and the effect of the 
default of a joint clearing member on such rights and obligations.
2. The Proposed Rule Changes
    ICC no longer desires to be a cross-netting DCO, and therefore, OCC 
and ICC have proposed to eliminate the ability of a joint clearing 
member to select ICC as a DCO. These proposed rule changes will have no 
effect: (1) On the basic procedures under which cross-netted 
obligations are settled or (2) upon any joint clearing member because 
no joint clearing member has ever selected ICC as its cross-netting 
DCO.
    To accomplish the proposed rule changes, OCC and ICC will amend OCC 
Rule 1605(c) and ICC Rule 1205(c). The two rules deal with the cross-
netting of foreign currency obligations and will be modified to state 
that henceforth only OCC will be the DCO and effect the settlement of 
such obligations. OCC and ICC also will delete from OCC By-Laws Article 
XV, Section 1 and from ICC Rule 1202 the term and definition of 
``designated clearing organization.''
    OCC and ICC will replace the existing Mutual Agency Agreement 
between OCC and ICC with a proposed Agreement for Cross-Netting Foreign 
Currency Settlements (``Cross-Netting Agreement''). The proposed Cross-
Netting Agreement, which is based on the Mutual Agency Agreement, has 
been drafted by OCC and ICC to implement the above-described rule 
changes. Specifically, the Cross-Netting Agreement provides: (1) That 
OCC and ICC will furnish a form notice by which a joint clearing member 
may elect to cross-net its OCC and ICC obligations and which will 
provide that only OCC will effect the cross-netted settlements; (2) 
that OCC agrees to act as agent for ICC in effecting cross-netted 
settlements with a joint clearing member; (3) that neither OCC nor ICC 
will change its rules relating to the margining and settling of foreign 
currency obligations without the consent of the other; and (4) the 
settlement, default, indemnity, and termination procedures.
    Under the Cross-Netting Agreement, the settlement and default 
procedures will remain unchanged except that only OCC will be 
authorized to effect the cross-netting settlements. Likewise, the terms 
of indemnity between OCC and ICC will remain unchanged except for the 
fact that OCC will no longer indemnify ICC for actions taken by ICC as 
agent for OCC in effecting cross-netting settlements. Finally, the 
terms for terminating the Cross-Netting Agreement will remain unchanged 
except that the notice requirement between the two parties will be 
shortened from ninety days to thirty days.
    OCC and ICC state the proposed rule changes are consistent with the 
Act and in particular with section 17A of the Act\3\ in that the rule 
changes neither adversely affect the safeguarding of securities or 
funds in the custody or control of OCC or ICC or for which they are 
responsible nor significantly affect the rights or obligations of OCC, 
ICC, or those joint clearing members that have elected cross-netting.
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    \3\15 U.S.C. 78q-1 (1988).
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B. Self-Regulatory Organizations' Statement on Burden on Competition

    OCC and ICC believe that the proposed rule changes will not impose 
any burden on competition.

C. Self-Regulatory Organizations' Statement on Comments on the Proposed 
Rule Changes Received From Members, Participants or Others

    OCC and ICC have not solicited or received any comments on the 
proposed rule changes.

III. Date of Effectiveness of the Proposed Rule Changes and Timing for 
Commission Action

    Within thirty-five days of the date of publication of this notice 
in the Federal Register or within such longer period: (i) As the 
Commission may designate up to ninety days of such date if it finds 
such longer period to be appropriate and publishes its reasons for so 
finding or (ii) as to such period that the SROs consent, the Commission 
will:

    (A) By order approve such proposed rule changes or
    (B) Institute proceedings to determine whether the proposed rule 
changes should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street NW., Washington, DC 20549. Copies 
of the submission, all subsequent amendments, all written statements 
with respect to the proposed rule changes that are filed with the 
Commission, and all written communications relating to the proposed 
rule changes 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 inspection and copying in the 
Commission's Public Reference Section, 450 Fifth Street NW., 
Washington, DC 20549. Copies of such filing will also be available for 
inspection and copying at the principal offices of OCC and ICC. All 
submissions should refer to File Nos. SR-OCC-94-01 and SR-ICC-94-01 and 
should be submitted by March 24, 1994.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-4871 Filed 3-2-94; 8:45 am]
BILLING CODE 8010-01-M