[Federal Register Volume 61, Number 214 (Monday, November 4, 1996)]
[Notices]
[Pages 56729-56730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-28184]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37881; File No. SR-OCC-96-09]
Self-Regulatory Organizations; The Options Clearing Corporation;
Order Granting Approval of a Proposed Rule Change Relating to the
Valuation of Government Securities
October 28, 1996.
On July 18, 1996, The Options Clearing Corporation (``OCC'') filed
a proposed rule change (File No. SR-OCC-96-09) with the Securities and
Exchange Commission (``Commission'') pursuant to Section 19(b) of the
Securities Exchange Act of 1934 (``Act''). \1\ On August 22, 1996, OCC
filed an amendment to the proposed rule change. \2\ Notice of the
proposal was published in the Federal Register on September 12, 1996,
to solicit comments from interested persons. \3\ No comments were
received. As discussed below, this order approves the proposed rule
change.
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\1\ 15 U.S.C. Sec. 78s(b) (1988).
\2\ Letter from Michael G. Vitek, OCC, to Jerry Carpenter,
Assistant Director, Division of Market Regulation, Commission
(August 19, 1996).
\3\ Securities Exchange Act Release No. 37645 (September 5,
1996), 61 FR 48194.
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I. Description
The proposed rule change modifies the valuation methodology on
deposits of government securities for margin and clearing fund purposes
and expands the category of government securities eligible for deposit
to include maturities greater than ten years. Presently, OCC values
government securities at either: (1) the lesser of par value or 100% of
the current market value for maturities of less than one year or (2)
the lesser of par value of 95% of the current market value for
maturities between one and ten years.
Government securities were defined by Section 1 of Article 1 of
OCC's By-laws as securities issued or guaranteed by the United States
or Canadian government or by any other foreign government acceptable to
OCC and maturing within ten years. The amendment deletes the ten year
restriction.
The proposed rule change also amends Section 3 of Article VIII of
OCC's By-laws and Rule 604 of OCC's Rules to establish a new schedule
of haircuts. \4\ Pursuant to the amendments, Government securities
deposited as either clearing fund or margin will be valued at: (1)
99.5% of the current market value for maturities of less than one year;
(2) 98% of the current market value for maturities between one and five
years; (3) 96.5% of the current market value for maturities between
five and ten years; and (4) 95% of the current market value for
maturities in excess of ten years.
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\4\ Article III, Section 3 sets forth the allowable forms of
contributions to the clearing fund. Rule 604 set forth the allowable
forms of margin deposits.
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II. Discussion
Since the early 1980's, OCC has revalued Government securities on a
monthly basis. Because OCC is now
[[Page 56730]]
ready to revalue Government securities on a daily basis and to include
the valuation in its overall daily assessment of clearing member margin
and clearing fund deposits, OCC believes the par value methodology and
prohibition on deposits of securities with maturities beyond ten years
are overly conservative and no longer necessary to protect OCC from
risk associated with value changes in margin and clearing fund
deposits.
Before setting the haircut levels, OCC reviewed the haircut
policies of other derivative clearing houses and analyzed recent
historical volatilites of government securities. OCC collected daily
data since 1990 on government securities of various maturities across
the yield curve and analyzed this historical volatility for the setting
of margin intervals within OCC's Theoretical Intermarket Margin System.
The proposed haircut levels should adequately cover more than 99% of
the movements of all days since 1990.
Section 17A(b)(3)(F) of the Act requires that a clearing agency's
rules be designed to ensure the safeguarding of securities and funds in
its custody or control or for which it is responsible. \5\ Based on the
foregoing, the Commission believes that OCC's proposed modifications to
its rules governing the acceptance, valuation, and haircutting of
Government securities is consistent with OCC's obligation to safeguard
securities and funds.
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\5\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and
particularly with Section 17A(b)(3)(F) of the Act and the rules and
regulations thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
\6\ that the proposed rule change (File No. SR-OCC-96-09) be and hereby
is approved.
\6\ 15 U.S.C. 78s(b)(2) (1988).
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For the Commission by the Division of Market Regulation,
pursuant to delegated authority. \7\
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\7\ 17 CFR 200.30(a)(12) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-28184 Filed 11-1-96; 8:45 am]
BILLING CODE 8010-01-M