[Federal Register Volume 60, Number 167 (Tuesday, August 29, 1995)]
[Notices]
[Pages 44926-44927]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21354]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36138; File No. SR-OCC-95-09]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Order Granting Accelerated Approval on a Temporary 
Basis of a Proposed Rule Change Relating to Revisions to the Standards 
for Letters of Credit Deposited as Margin

August 23, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 7, 1995, The Options 
Clearing Corporation (``OCC'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I and II below, which items have been prepared primarily by OCC. 
The Commission is publishing this notice and order to solicit comments 
from interested persons and to grant accelerated approval of the 
proposed rule change on a temporary basis through June 28, 1996.

    \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 proposed rule change extends the Commission's previous 
temporary approval of OCC's modifications that relate to OCC's 
standards for letters of credit deposited with OCC as margin. In 
general, OCC requires that letters of credit deposited by clearing 
members as margin with OCC be irrevocable and unless otherwise 
permitted by OCC expire on a quarterly basis. In addition, OCC may draw 
upon a letter of credit regardless of whether the clearing member has 
been suspended or defaulted on any obligation to OCC if OCC determines 
that such action is advisable to protect OCC, other clearing members, 
or the general public.\2\ 

    \2\For a complete description of these modifications to the 
standards for letters of credit, refer to Securities Exchange Act 
Release No. 29641 (August 30, 1991), 56 FR 46027 [File No. SR-OCC-
91-13] (order temporarily approving proposed rule change through 
February 28, 1992).
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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.\3\ 

    \3\The Commission has modified the text of the summaries 
prepared by OCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The Commission previously granted temporary approval to proposed 
rule changes filed by OCC that modified OCC Rule 604, which sets forth 
the standards for letters of credit deposited with OCC as margin.\4\ 

    \4\Securities Exchange Act Release Nos. 29641 (August 30, 1991), 
56 FR 46027 [File No. SR-OCC-91-13] (order temporarily approving 
proposed rule change through February 28, 1992); 30424 (February 28, 
1992), 45 FR 8160 [File No. SR-OCC-92-06] (order temporarily 
approving proposed rule change through May 31, 1992); 30763 (June 1, 
1992), 57 FR 24284 [File No. SR-OCC-92-11] (order temporarily 
approving proposed rule change through August 31, 1992); 31126 
(September 1, 1992) 57 FR 40925 [File No. SR-OCC-92-19] (order 
temporarily approving proposed rule change through December 31, 
1992); 31614 (December 17, 1992), 57 FR 61142 [File No. SR-OCC-92-
37] (order temporarily approving proposed rule change through June 
30, 1993); 32532 (June 28, 1993) 58 FR 36232 [File No. SR-OCC-93-14] 
(order temporarily approving proposed rule change through June 30, 
1994); and 34206 (June 13, 1994), 59 FR 31661 [File No. SR-OCC-94-
06] (order temporarily approving proposed rule change through June 
30, 1995).
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    The standards set forth in Rule 604 include the following: (1) In 
order to conform to the Uniform Commercial Code and to avoid any 
ambiguity as to the latest time for honoring demands upon letters of 
credit, letters of credit must state expressly that payment must be 
made prior to the close of business on the third banking day following 
demand, (2) letters of credit must be irrevocable, (3) letters of 
credit must expire on a quarterly basis, and (4) OCC may draw upon 
letters of credit at any time, regardless of whether the clearing 
member that deposited the letter of credit has been suspended or is in 
default, if OCC determines that such action is advisable to protect 
OCC, other clearing members, or the general public.\5\ 

    \5\Supra note 2.
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    OCC believes that the proposed rule change is consistent with the 
requirements of Section 17A(b)(3)(F) of the Act\6\  because the 
proposed rule change promotes the protection of investors by enhancing 
OCC's ability to safeguard the securities and funds in its custody or 
control or for which it is responsible.

    \6\15 U.S.C. 78q-1.

[[Page 44927]]


(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

    Comments were not and are not intended to be solicited by OCC with 
respect to the proposed rule change, and none were received. Since 
approval of the original proposed rule change modifying its letter of 
credit standards, OCC has received no adverse comments or complaints 
from any of its clearing members, the banks, or other interested 
parties with respect to the modifications to Rule 604 or to the 
implementation of the revised letter of credit standards.

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

    Section 17A(b)(3)(F) of the Act requires that the rules of a 
clearing agency be designed to assure the safeguarding of securities 
and funds in its custody or control or for which it is responsible.\7\ 
The Commission believes that the proposed rule change is consistent 
with OCC's obligations under Section 17A(b)(3)(F) because the modified 
standards for letters of credit will enable OCC to draw upon a letter 
of credit at any time that OCC determines that such a draw is advisable 
to protect OCC, other clearing members, or the general public. This 
ability increases the liquidity of its margin deposits by enabling OCC 
to substitute cash collateral for a clearing member's letter of credit 
and consequently, will permit OCC to rely more safely upon such letters 
of credit. In addition, by eliminating the issuer's right to revoke the 
letter of credit, an issuer will no longer be able to revoke a letter 
of credit at a time when the clearing member is experiencing financial 
difficulty and most needs credit facilities. Finally, requiring that 
the letters of credit expire quarterly rather than annually will result 
in the issuers conducting more frequent credit reviews of the clearing 
members for whom the letters of credit are issued. More frequent credit 
reviews will facilitate the discovery of any adverse developments in a 
more timely manner. By approving the proposed rule change on a 
temporary basis through June 28, 1996, OCC, the Commission, and other 
interested parties will be able to assess further, prior to permanent 
Commission approval, any effects the revised standards have on letter 
of credit issuance and on margin deposited at OCC.\8\

    \7\15 U.S.C. Sec. 78q-1(b)(3)(F) (1988).
    \8\The Commission and OCC currently are studying concentration 
limits on letters of credit deposited as margin. The Division 
believes that clearing agencies that accept letters of credit as 
margin deposits or clearing fund contributions should limit their 
exposure by imposing concentration limits on the use of letters of 
credit. Generally, clearing agencies impose limitations on the 
percentage of an individual member's required deposit or 
contribution that may be satisfied with letters of credit, 
limitations on the percentage of the total required deposits or 
contributions that may be satisfied with letters of credit by any 
one issuer, or some combination of both. OCC has no concentration 
limits on the use of letters of credit issued by U.S. institutions.
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    OCC has requested that the Commission find good cause for approving 
the proposed rule change on an accelerated basis prior to the thirtieth 
day after the date of publication of notice of the filing. The 
Commission finds good cause for so approving the proposed rule change 
because accelerated approval will allow the changes that have been 
implemented pursuant to the previous temporary approval order to remain 
in place during the further assessment of any effects the revised 
standards have on the issuance of letters of credit and on margin 
deposited at OCC pending permanent approval.

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, N.W., Washington, D.C. 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. Sec. 552, will be available for inspection and copying in 
the Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, DC 20549. Copies of such filing also will be available for 
inspection and copying at the principal office of OCC. All submissions 
should refer to File No. SR-OCC-95-09 and should be submitted by 
September 19, 1995.

V. Conclusion

    On the basis of the foregoing, the Commission finds that OCC's 
proposed rule change is consistent with the Act and in particular with 
Section 17A of the Act.
    It is therefore ordered, under Section 19(b)(2) of the Act, that 
the proposal (File No. SR-OCC-95-09) be, and hereby is, approved on a 
temporary basis through June 28, 1996.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\

    \9\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-21354 Filed 8-28-95; 8:45 am]
BILLING CODE 8010-01-M