[Federal Register Volume 59, Number 105 (Thursday, June 2, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13380]


[[Page Unknown]]

[Federal Register: June 2, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34110; File No. SR-ICC-600-21]

 

Self-Regulatory Organizations; The Intermarket Clearing 
Corporation; Notice of Filing of the Withdrawal of an Application for 
Registration as a Clearing Agency

May 25, 1994.
    Pursuant to section 19(a)(3) of the Securities Exchange Act of 1934 
(``Act''),\1\ The Intermarket Clearing Corporation (``ICC'') has filed 
with the Securities and Exchange Commission (``Commission'') notice of 
its intent to withdraw its request for permanent registration as a 
clearing agency and to terminate its temporary registration as a 
clearing agency.\2\ The Commission is publishing this notice to solicit 
comments on ICC's proposal from interested persons.
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    \1\15 U.S.C. 78s(a)(3) (1988).
    \2\Letter from James C. Yong, Vice President and Assistant 
Secretary, ICC, to Jonathan G. Katz, Secretary, Commission (March 
24, 1994).
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I. Discussion

    ICC is the commodity clearing subsidiary of The Options Clearing 
Corporation (``OCC''). ICC commenced operations in 1985 as a ``clearing 
organization,'' as defined in the rules promulgated under the Commodity 
Exchange Act,\3\ and therefore is subject to oversight and regulation 
by the CFTC. ICC guarantees, clears, and settles futures contracts, 
options on futures contracts, and commodity options which are traded on 
those contract markets that have designated ICC as their clearing 
organization.\4\
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    \3\Commodity Futures Trading Commission (``CFTC'') Rule 1.3(d) 
[17 CFR 1.3(d) (1993)] defines clearing organization as the person 
or organization which acts as a medium for clearing transactions in 
commodities for future delivery or commodity option transactions or 
for effecting settlements of contracts for future delivery or 
commodity option transactions for and between members of a contract 
market.
    \4\Currently, ICC acts as the clearing organization for the Amex 
Commodities Corp., the New York Futures Exchange, Inc., and the 
Philadelphia Board of Trade.
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    Because the economic similarity between certain securities products 
and certain commodity products created opportunities for intermarket 
hedging and arbitrage, ICC and OCC developed a program to offer cross-
margining to joint members of ICC and OCC.\5\ The original cross-
margining program between ICC and OCC required a joint member to 
transfer positions in securities options eligible for cross-margining 
from its OCC account to its account at ICC. Such options positions and 
futures contracts eligible for cross-margining were margined at ICC 
based upon the net risk of the combined positions. ICC held all 
positions, margin deposits, and clearing fund deposits with respect to 
the cross-margining program. ICC was obligated to OCC to perform a 
participating joint member's obligations with respect to short 
positions in securities options held in the joint member's ICC cross-
margining account, and OCC remained obligated to collect and pay all 
premiums for transactions in securities options and to effect 
settlement of all exercises. Because securities positions were held and 
were margined at ICC and because ICC held all the margin deposits and 
clearing fund deposits with respect to cross-margined positions, ICC 
believed that it could possibly be viewed as being within the Act's 
definition of a clearing agency\6\ and therefore registered with the 
Commission as such.\7\
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    \5\Securities Exchange Act Release Nos. 26153 (October 3, 1988), 
53 FR 39567 [File No. SR-OCC-86-17] (order approving OCC/ICC 
proprietary cross-margining program) and 30041 (December 5, 1991), 
56 FR 64824 [File Nos. SR-OCC-90-04 and SR-ICC-90-03] (order 
approving OCC/ICC non-proprietary, market professional cross-
margining program).
    \6\Section 3(a)(23)(A) [15 U.S.C. 78c(a)(23)(A) (1988)] defines 
a clearing agency as any person who acts as an intermediary in 
making payments or deliveries or both in connection with 
transactions in securities or who provides facilities for comparison 
of data respecting the terms of settlement, to reduce the number of 
securities transactions, or for the allocation of securities 
settlement responsibilities.
    \7\On October 3, 1988, the Commission granted ICC temporary 
registration as a clearing agency for a period of eighteen months 
(Securities Exchange Act Release No. 26154 (October 3, 1988), 53 FR 
39556). On April 5, 1990, October 3, 1991, and April 2, 1993, the 
Commission extended ICC's temporary registration for additional 
eighteen month periods (Securities Exchange Act Release Nos. 27879 
(April 5, 1990), 55 FR 39556; 29781 (October 3, 1991), 56 FR 50959; 
and 32098 (April 2, 1993), 58 FR 18277).
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    Following regulatory approval of the cross-margining program 
between ICC and OCC, OCC entered into cross-margining arrangements with 
several other commodity clearing organizations.\8\ Pursuant to those 
later cross-margining programs, instead of transferring all cross-
margined option and futures positions into an account held at one 
clearing organization, cross-margined option positions are held at OCC 
and cross-margined futures positions are held at the participating 
commodity clearing organization. OCC and the participating commodity 
clearing organization share information regarding the positions held in 
their cross-margining accounts and treat the cross-margining accounts 
as being combined for purposes of calculating margin requirements. 
Collateral deposited to satisfy margin requirements is subject to the 
joint control of OCC and the participating commodity clearing 
organization. Members electing to participate in a cross-margining 
program must grant OCC and the participating commodity clearing 
organization cross-liens on option positions maintained at OCC and on 
futures positions maintained at the participating commodity clearing 
organization. Under this later cross-margining structure, a 
participating commodity clearing organization is not considered to be 
within the Act's definition of a clearing agency and therefore is not 
required to register with the Commission as such.
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    \8\E.g., Securities Exchange Act Release Nos. 27296 (September 
26, 1989), 54 FR 41195 (order approving OCC/CME cross-margining 
program for proprietary positions); 29991 (November 26, 1991), 56 FR 
61458 (order approving expansion of OCC/CME cross-margining program 
to include positions held for market professionals); 29888 (October 
31, 1991), 56 FR 56680 (order approving OCC/Board of Trade Clearing 
Corporation cross-margining program for proprietary positions); 
32681 (July 27, 1993), 58 FR 41302 (order approving expansion of 
OCC/BOTCC cross-margining program to include positions held for 
market professionals); 30413 (February 26, 1992), 57 FR 7830 (order 
approving OCC/Kansas City Board of Trade Clearing Corporation 
[``KCBOTCC''] cross-margining program for proprietary positions); 
and 32708 (August 2, 1993), 58 FR 42586 (order approving the 
expansion of the OCC/KCBOTCC cross-margining program to include 
positions held for market professionals).
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    Recently, the cross-margining program between ICC and OCC was 
restructured so that it parallels the cross-margining programs between 
OCC and other participating commodity clearing organizations.\9\ ICC 
believes that under the restructured cross-margining program it will no 
longer be acting as an intermediary in making payments or deliveries in 
connection with securities transactions and therefore will not be a 
clearing agency under the Act.\10\ Accordingly, ICC requests that its 
application for permanent registration with the Commission as a 
clearing agency be withdrawn.
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    \9\Securities Exchange Act Release No. 33342 (December 22, 
1993), 58 FR 67885 [File Nos. SR-OCC-93-07 and SR-ICC-93-04] (order 
approving proposed rule changes to restructure the cross-margining 
program between OCC and ICC).
    \10\ICC and OCC also offer joint members a cross-netting service 
which provides for the netting of a member's OCC exercise and 
assignment settlement obligations with its ICC settlement 
obligations. Previously, a joint member was able to select either 
ICC or OCC as its designated clearing organization (``DCO'') for the 
purpose of settling its cross-netted obligations. The clearing 
agency selected as DCO was to act as the agent of the other clearing 
organization in effecting the cross-netted settlements. ICC has 
never been selected as a joint member's DCO, and pursuant to the 
recent approval of rule changes filed by ICC and OCC, members are no 
longer able to select ICC as their DCO. For a more detailed 
description of the proposed rule changes, refer to Securities 
Exchange Act Release No. 34088 (May 19, 1994), 59 FR 27303 [File 
Nos. SR-OCC-94-01 and SR-ICC-94-01] (order approving proposed rule 
change related to restructuring of cross-netting agreement between 
ICC and OCC). Accordingly, ICC believes that it will no longer be 
performing any activity with respect to cross-netting that would 
bring it within the definition of a clearing agency under the Act.
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II. 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 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 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 office of the above-referenced 
self-regulatory organization.
    All submissions should refer to File No. SR-ICC-600-21 and should 
be submitted by July 5, 1994.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-13380 Filed 6-1-94; 8:45 am]
BILLING CODE 8010-01-M