[Federal Register Volume 62, Number 133 (Friday, July 11, 1997)]
[Notices]
[Pages 37326-37327]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-18228]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38796; File No. SR-DCC-97-02]


Self-Regulatory Organizations; Delta Clearing Corp.; Order 
Approving a Proposed Rule Change Relating to Multiple Brokers for 
Options Transactions

June 30, 1997.
    On March 11, 1997, Delta Clearing Corp. (``Delta'') filed with the 
Securities and Exchange Commission (``Commission'') a proposed rule 
change (File No. SR-DCC-97-02) pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act'').\1\ Notice of the 
proposal was published in the Federal Register on May 13, 1997.\2\ No 
comment letters were received. For the reasons discussed below, the 
Commission is approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 38568 (May 2, 1997), 62 
26342.
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I. Description

    The rule change modifies Delta's procedures for options trading 
(``Options Procedures'') to allow brokers which have been approved by 
Delta pursuant to the conditions set forth in the Options Procedures to 
submit trade reports for options transactions on behalf of 
participants. Currently, Delta's Options Procedures provide that Delta 
may accept trade reports for options transactions only from one broker, 
Euro Broker Maxcor, Inc. (``Euro Broker'').
    Although the rule change allows Delta to designate certain options 
brokers as authorized to submit trades, such brokers will not be 
accorded the status of a ``participant,'' and the Options Procedures 
make no provision for an authorized broker to maintain money or 
securities accounts at Delta. Accordingly, no provision has been made 
for margin requirements or liquidation of an authorized broker's 
accounts in the event of the broker's suspension. Nevertheless, the 
procedures identify the minimum requirements a brokers' broker must 
meet and the procedures Delta must follow in the event it determines to 
deny access to an authorized broker or suspend an authorized broker's 
access to Delta's clearing system.\3\
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    \3\ The conditions for designation as an authorized broker are 
set out in Section 2001 of the Options Procedures. The 
qualifications necessary for designation as an authorized broker 
include the following: (1) the broker must be properly registered 
with the Commission under Section 15(b) or 15C of the Exchange Act 
and be a member in good standing of the National Association of 
Securities Dealers, Inc.; (2) the broker must indicate an interest 
in brokering transactions to be cleared through Delta's clearing 
system and must have the operational capacity to do so; (3) the 
broker must review the requirements of Exchange Act Rule 17a-23 and 
must execute a certificate confirming its compliance therewith; (4) 
the broker must be in compliance with all net capital requirements; 
(5) the broker must maintain the books and records required to be 
maintained under the Options Procedures; (6) the broker must employ 
personnel and utilized procedures which are sufficient to discharge 
its obligations in a timely and efficient manner; and (7) absent 
special circumstances, neither the broker nor any associated persons 
shall be subject to a statutory disqualification.
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    The rule change amends Section 401 of the Options Procedures to 
provide for submission of trade reports by authorized brokers in the 
case of brokered transactions or by participants in the case of 
nonbrokered transactions. The rule change also amends Section 2002 of 
the procedures to provide that every authorized broker shall keep 
records showing the name of the participants to the transactions with 
respect to each transaction submitted by such authorized broker to be 
effected through Delta's clearing system.\4\
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    \4\ The rule change also makes other sections of the Options 
Procedures apply to options brokers. These include:
    (i) Section 206, requiring the delivery of financial reports and 
audits;
    (ii) Section 208, setting forth the admission procedure for an 
applicant;
    (iii) Section 209(a), requiring an authorized broker prior to 
admission as an authorized broker to execute an agreement agreeing 
to be bound by Delta's procedures;
    (iv) Sections 209(b)(iv) and (v), pursuant to which an 
authorized broker agrees to permit inspection of its books and 
records (limited to the extend relating to transactions cleared 
through Delta's clearing system) and to indemnify Delta and its 
principals from default of misconduct by the authorized broker;
    (v) Section 210(b), allowing an authorized broker to withdraw 
voluntarily by delivering written notice to Delta and Delta's 
clearing bank;
    (vi) Sections 301 and 303, requiring among other things that the 
authorized broker maintain an office during business hours at which 
a representative of the authorized broker would be available to take 
all actions necessary for conducting business through the clearing 
system and maintain computer and communication equipment capable of 
supporting software provided by Delta enabling computer to computer 
communication of reports and other notices;
    (vii) Article XII (Sections 1201, 1202, and 1208), providing for 
suspension of authorized brokers upon the terms set forth therein;
    (viii) Article XV, applying the force majeure provisions to 
authorized brokers;
    (ix) Article XVII, pursuant to which the authorized brokers 
agree to submit to the jurisdiction of the courts of the State of 
New York or the United States courts for the Southern District of 
New York; and
    (x) The definition of authorized representative in Article I.

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[[Page 37327]]

    Brokers may be approved to act either as authorized brokers for 
options transactions or as authorized brokers for repurchase agreement 
transactions cleared through Delta or may be approved to act as 
authorized brokers for both options and repurchase agreement 
transactions. Initially, Delta anticipates that there will be three 
entities which will apply and will be authorized as brokers for the 
options clearing system.\5\
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    \5\ Such brokers are Euro Broker, RMJ Options Trading Corp., and 
GFI Group, Inc.
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    Delta expects that the approval of authorized brokers for options 
transactions may increase the volume of options transactions cleared 
through Delta; however, Delta expects to clear no more than two hundred 
options contracts per day as a consequence of admitting additional 
authorized brokers. In light of the fact that the approval of 
authorized brokers may result in increased trading volume and the fact 
that Delta presently clears options and repurchase agreement 
transactions on two different hardware platforms, Delta has adopted 
interim internal operating procedures providing for manual oversight of 
participant and system exposures limits.\6\
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    \6\ At the start of each business day, Delta will review the 
exposure of each participant from options and repurchase agreement 
transactions to determine any violations of exposure limits. Delta 
will establish a watch list of any participant whose exposure is 80% 
of their exposure limit. Delta will monitor closely all activity by 
participants on the watch list. If necessary, Delta will also 
calculate intraday exposure for participants which may result in 
additional collateral calls.
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II. Discussion

    Section 17A(b)(3)(F) \7\ of the Exchange Act requires that a 
clearing agency be organized and its rules be designed to promote the 
prompt and accurate clearance and settlement of securities 
transactions, to safeguard funds and securities in its custody or 
control, and to remove impediments to and perfect the mechanism of a 
national system for the prompt and accurate clearance and settlement of 
securities transactions. The Commission believes that Delta's 
introduction of multiple brokers for options transactions should permit 
wider utilization of its clearing system by participants. Thus, the 
proposal should increase the number of trades that are incorporated 
into the national clearance and settlement system and that will obtain 
the benefit of Delta's guarantee and Delta's risk management system. By 
allowing more trades to be settled through an automated clearance 
system, the proposal should also enhance the prompt and accurate 
clearance and settlement of trades.
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    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission believes that providing for multiple brokers for 
options transactions and the possible increase in options trades 
processed through Delta is being done consistently with Delta's 
obligations to safeguard securities and funds under Section 17A. For 
example, Delta has adopted procedures to monitor participants' 
exposure. Also, Delta will only accept brokers that meet certain 
standards designed to ensure that the broker has the facilities to 
perform its functions promptly and accurately. Finally, Delta will 
receive the broker's financial statements and the ability to inspect 
the broker's books and records and thus will be able to monitor any 
changes in the broker's condition.

III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Exchange Act and in 
particular with the requirements of Section 17A of the Exchange Act and 
the rules and regulations thereunder.
    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Exchange Act, that the proposed rule change (File No. SR-DCC-97-02) be 
and hereby is approved.

    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. 97-18228 Filed 7-10-97; 8:45 am]
BILLING CODE 8010-01-M