[Federal Register Volume 62, Number 97 (Tuesday, May 20, 1997)]
[Notices]
[Pages 27638-27640]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13102]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38625; File No. SR-OCC-97-01]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of a Proposed Rule Change Permitting Certain Fund 
Shares To Satisfy Margin Requirements and Permitting the Use of Certain 
Fund Shares and Trust Units for Escrow Deposits

May 13, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on February 21, 1997, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change (File No. 
SR-OCC-97-01) 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.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change will permit OCC participants to deposit 
with OCC certain shares issued by an open-end management investment 
company (``fund shares'') as a form of margin. The

[[Page 27639]]

proposed rule change also will permit participants to make escrow 
deposits with OCC by using fund shares and certain publicly traded 
units of beneficial interest in unit investment trusts (``trust 
units'').

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.\2\
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    \2\ 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

(1) Using Fund Shares as a Form of Margin
    The proposed rule change will amend subparagraph (4) of OCC Rule 
604(d), which sets forth the margin deposit eligibility requirements 
for debt and equity issues, to permit OCC participants to deposit as a 
form of margin collateral fund shares issued by open-end management 
investment companies that hold portfolios or baskets of common stocks. 
These classes of fund shares are traded and cleared like shares of 
common stock and are typically held in book-entry form at a securities 
depository. As a result, OCC believes it will be able to readily 
perfect a security interest in deposited fund shares and will be able 
to liquidate them if necessary. Accordingly, OCC believes it is 
appropriate to allow its participants to use fund shares as a form of 
margin collateral under the conditions specified in subparagraph (4) of 
Rule 604(d), which currently permits OCC participants to use approved 
trust units as margin deposits.\3\
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    \3\ Currently, the only trust units approved for deposit as 
margin are Standard & Poor's (``S&P'') Depository Receipts 
(``SPDRs'') on the S&P 500 Index and S&P 400 Mid-Cap Index. 
Securities Exchange Act Release No. 38105, (December 31, 1996) 62 FR 
1014 [File No. SR-OCC-96-13] (order approving a proposed rule change 
relating to unit investment trusts as margin collateral).
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    To enable participants to deposit fund shares as margin collateral, 
the proposed rule change will amend the term ``stock'' defined in 
subparagraph (4) of Rule 604(d) to include fund shares. In addition, 
fund shares also will have to meet the requirements applicable to 
stocks under Rule 604(d) and be of a class approved by OCC for deposit 
as margin. Because Rule 604(d)(1) requires that a stock be exchange 
listed or traded on the NASDAQ National Market System, the ``publicly 
traded'' requirement of subparagraph (4) will be deleted as 
unnecessary.
    The proposed rule change also will amend Section 11 of OCC's 
Interpretations and Policies to require that OCC's Membership/Margin 
Committee (``Committee'') approve classes of fund shares for deposit as 
margin. Presently, World Equity Benchmark Shares (``WEBS'') listed on 
the American Stock Exchange are the only class of fund shares the 
Committee has approved.
(2) Using Fund Shares and Trust Units as Escrow Deposits
    The proposed rule change also will amend OCC Rule 1801(b), which 
relates to index option escrow deposits, by adding new subparagraph 2 
which will define the term ``common stocks'' to include fund shares and 
trust units.\4\ By adding this definition, OCC Rule 1801(b) will permit 
participants to use fund shares and trust units as part of an escrow 
deposit made with respect to index call option contracts carried in a 
short position in a participants' customer account.\5\
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    \4\ The proposed rule change also will make technical changes to 
Rule 1801 to reflect the addition of new subparagraph (b)(2).
    \5\ OCC has filed with the Commission a proposed rule change 
(File No. SR-OCC-97-02) that will authorize OCC to issue and clear 
options on fund shares and trust units. OCC also asserts that, if 
approved by the Commission, fund shares and trust units will by 
definition become ``underlying securities as defined by Article I, 
Section 1 of OCC's bylaws,'' and escrow deposits with respect to 
call option contracts on these underlying securities carried in a 
short position will be automatically permitted under the existing 
provisions of OCC Rule 610, which relates to the deposit of 
underlying securities in lieu of margin.
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    The language of the new definition parallels that of Rule 604(d), 
as proposed to be amended herein. Accordingly, fund shares and trust 
units deposited must meet the existing requirements for deposits of 
common stock under Rule 1801(b) and must be of a class approved by OCC 
for deposit as margin collateral. Because the Committee already has 
approved for deposit as margin SPDRs on the S&P 500 Index and S&P 400 
Mid-Cap Index (as an eligible class of trust units) and WEBS (as as 
eligible class of fund shares), upon approval of this rule filing SPDRs 
and WEBS will be eligible for use as escrow deposits for short 
positions in index call options.\6\
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    \6\ If the Commission approves the proposed rule change, OCC 
will send a notice to each of its custodian banks advising them that 
the term ``common stocks'' as used in the Amended and Restated On-
Line Escrow Deposit Agreement includes the SPDRs and WEBS identified 
above.
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    OCC believes that the proposed rule change is consistent with the 
requirements of section 17A of the Act \7\ and the rules and 
regulations thereunder because it expands the forms of margin 
collateral that may be deposited with OCC in a prudent and safe manner 
designed to assure the safeguarding of securities in OCC's custody and 
control.
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    \7\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    OCC does not believe that the proposed rule change would impose any 
burden on competition.

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

    Written comments were not and are not intended to be solicited with 
respect to the proposed rule change, and none have been received.

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

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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 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-97-01 and should be submitted by June 10, 1997.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-13102 Filed 5-19-97; 8:45 am]
BILLING CODE 8010-01-M