[Federal Register Volume 60, Number 69 (Tuesday, April 11, 1995)]
[Notices]
[Pages 18433-18435]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8870]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35567; File No. SR-OCC-95-02]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change Seeking to Make the Stock 
Loan/Hedge Program Available to Market-Maker and Specialist Accounts 
Established and Maintained by Clearing Members

April 5, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on February 13, 1995, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change (File No. 
SR-OCC-95-02) as described in Items I, II, and III below, which items 
have been prepared primarily 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) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the proposed rule change is to make OCC's Stock 
Loan/Hedge Program available to accounts established and maintained 
with OCC by clearing members for market-makers and 
specialists. [[Page 18434]] 

II. Self-Regulatory Organization'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 such statements.

(A) Self Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The primary purpose of the proposed rule change is to make OCC's 
Stock Loan/Hedge Program\2\ available to accounts established and 
maintained with OCC by clearing members for market-makers and 
specialists.\3\ Pursuant to OCC's By-Laws and Rules regarding its Stock 
Loan/Hedge Program, clearing members are permitted to carry stock loan 
and borrow positions in market-maker accounts.\4\ However, at the time 
OCC proposed its Stock Loan/Hedge Program, OCC was concerned that its 
Market-Maker Agreements\5\ did not adequately accommodate stock loans. 
Accordingly, OCC appended an Interpretation to Article XXI, Section 5 
of its By-Laws stating that OCC would not permit stock loan positions 
and stock borrow positions to be maintained in a market-maker's or 
specialist's account unless the market-maker or specialist had entered 
into an account agreement authorizing stock loan positions and stock 
borrow positions to be maintained in the account.\6\ In addition, OCC 
stated in SR-OCC-92-34 that it intended to submit revised versions of 
the various forms of Market-Maker Agreements to the Commission in a 
separate proposed rule change in the near future.

    \2\For a description of OCC's Stock Loan/Hedge Program, refer to 
Securities Exchange Act Release No. 32638 (July 15, 1993), 58 FR 
39264 [File No. SR-OCC-92-34] (order granting permanent approval of 
the Stock Loan/Hedge Program).
    \3\Market-makers and specialists are collectively referred to in 
this Notice as ``market-makers,'' and accounts established and 
maintained with OCC by clearing members for market-makers, including 
separate market-maker's or specialist's accounts, combined market-
maker's or specialists' accounts, registered trader's accounts and 
stock market-maker's or stock specialist's accounts (as described in 
Article VI, Section 3 of OCC's By-Laws) are collectively referred to 
in this Notice as ``market-maker accounts.''
    \4\For examples of permitted stock loan and borrow positions, 
refer to OCC By-Laws Article XXI, Section 5 stating that a stock 
loan position may not be maintained in a market-maker account unless 
the loaned stock to which the stock loan position relates is held 
for the account of the market-maker; OCC Rule 601(c) setting out 
margin requirements for market-maker accounts in which stock loan 
and borrow positions are carried; and OCC Rules 2209 and 2210 
describing the treatment of stock loan and borrow positions of a 
suspended clearing member, including stock loan and borrow positions 
carried in market-maker accounts.
    \5\The term ``Market-Maker Agreements'' is used in this Notice 
to refer collectively to the three forms of agreement for market-
maker accounts (i.e., separate market-maker's accounts, combined 
market-maker's accounts, and joint accounts).
    \6\Supra note 2.
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    OCC has reviewed its current Market-Maker Agreement forms and 
concluded that the current forms do adequately accommodate the Stock 
Loan/Hedge Program. Section 1 of each Market-Maker Agreement causes the 
market-maker and the clearing member to each agree that OCC has a lien 
``on all long positions, securities, margin and other funds and assets 
in the Account.'' OCC believes that stock loan and borrow positions are 
``securities, margin and other funds and assets,'' and accordingly has 
concluded that this language adequately establishes its rights with 
respect to stock loan and borrow positions carried in market-maker 
accounts.
    In addition, OCC has concluded that Section 3 of its Market-Maker 
Agreement causes market-makers signing the agreement to adequately 
authorize the clearing member to lend assets (i.e., stock) in the 
account and to adequately authorize OCC to rely on the terms on which 
the assets are loaned.\7\ Therefore, OCC now believes that the 
Interpretation to Article XXI, Section 5 of its By-Laws is unnecessary 
and proposes to delete the Interpretation.

    \7\A stock loan is not the result of an ``exchange transaction'' 
for purposes of OCC's rules because it does not arise from a 
transaction on an exchange. OCC therefore was concerned that the 
language of Section 1 of the Market-Maker Agreement did not 
adequately accommodate stock loans because the language is limited 
to exchange transactions of market-makers for whom an account is 
established. However, a stock borrow or loan position is established 
by a lending clearing member or borrowing clearing member not by a 
market-maker. As defined in Article I, Section 1(S)(8), the term 
``stock borrow position'' means the position of a borrowing clearing 
member in respect of a stock loan. In addition, in Article I, 
Section 1(S)(11), the term ``stock loan position'' means the 
position of a lending clearing member in respect of a stock loan. A 
borrowing clearing member does not need any authorization from a 
market-maker in whose account it instructs OCC to carry a stock 
borrow position because the position is entirely the responsibility 
of the clearing member. Similarly, a stock loan position is entirely 
the responsibility of the lending clearing member. However, because 
a stock loan position in a market-maker account may arise only from 
a clearing member's lending of stock held for the account of a 
market-maker for whom the account is carried (see Article XXI, 
Section 5(d) of OCC's By-Laws), a lending clearing member does need 
authority from a market-maker's stock and OCC needs authority from 
the market maker to permit the clearing member to lend a market-
maker to rely upon the terms of the loan. As described in the text, 
OCC believes the current form of the Market-Maker Agreements cause 
market-makers to provide this authority to both the clearing member 
and OCC.
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    OCC believes the proposed rule change is consistent with the 
requirements of the Act, specifically Section 17A of the Act, and the 
rules and regulations thereunder because the rule proposal will 
facilitate the prompt and accurate clearance and settlement of 
securities transactions.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    OCC does not believe that the proposed rule change will impact or 
impose a burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    No written comments have been solicited or received. OCC will 
notify the Commission of any written comments received by OCC.

 III. Date of Effectiveness of the Proposed Rule Change 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 which OCC consents, the Commission will:
    (a) by order approve such 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. 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 [[Page 18435]] available for inspection and 
copying in the Commission's Public Reference Room, 450 Fifth Street, 
NW., Washington, DC 20549. Copies of such filing will also be available 
for inspection and copying at the principal office of OCC. All 
submissions should refer to the file number SR-OCC-95-02 and should be 
submitted by May 2, 1995.

    For the Commission by the division of Market Regulation, 
pursuant to delegated authority.\8\

    \8\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-8870 Filed 4-10-95; 8:45 am]
BILLING CODE 8010-01-M