[Federal Register Volume 64, Number 107 (Friday, June 4, 1999)]
[Notices]
[Page 30092]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14115]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41456; File No. SR-OCC-99-05]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving a Proposed Rule Change Regarding Joint Back Office 
Participants

May 26, 1999.
    On March 3, 1999, The Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change (File No. SR-OCC-99-05) pursuant to section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ Notice of 
the proposal was published in the Federal Register on April 23, 
1999.\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. 41298 (April 16, 1999), 
64 FR 20043.
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I. Description

    The rule change amends OCC's rules and by-laws to allow clearing 
members to maintain joint back office accounts (``JBO accounts'') for 
the broker-dealers with whom the clearing members have joint back 
office arrangements (``JBO participants'') in which long positions can 
be used to offset short positions in options.
    Under the rule change, a broker-dealer registered with the 
Commission is considered a JBO participant if it: (1) Maintains a joint 
back office arrangement that satisfies the requirements of Regulation T 
\3\ with an OCC clearing member, (2) meets the applicable requirements 
as specified in the applicable exchange rules, and (3) consents to 
having its exchange transactions cleared and its positions carried in a 
JBO participant account.
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    \3\ Joint back office arrangements are authorized under Section 
220.7 of Regulation T of the Board of Governors of the Federal 
Reserve System and permit non-clearing broker-dealers to be deemed 
self-clearing for credit extension purposes if the non-clearing 
broker-dealer has an ownership interest in the clearing firm.
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    OCC will treat JBO participants like market makers and specialists 
and will treat JBO participants' accounts like market maker's accounts 
and specialist's accounts. For example, long positions in a JBO 
participant' account will be treated as unsegregated long positions. 
The exception to this treatment relates to Chapter IV of OCC's Rules, 
which pertains to the submission of matched trade reports from 
exchanges to OCC. OCC does not anticipate that its participant 
exchanges will report JBO transactions as market maker or specialist 
transactions for purposes of reporting matched trades. Accordingly, JBO 
participants will be not be included within the term ``market maker'' 
or ``specialist'' for the purposes of the rules in Chapter IV.
    In addition, the rule change amends Article I, section 1 of OCC's 
By-laws to add definitions for ``JBO participant'' and ``JBO 
participants' account'' and amends the definition of ``unsegregated 
long position'' to include long positions in JBO participants' 
accounts. The rule change also amends Interpretation .03 to Article V, 
section 1 of the By-laws, which provides that applicants for clearing 
membership must agree to seek approval from the membership/margin 
committee to clear types of transactions for which approval was not 
initially sought in the membership application, by adding JBO 
participant transactions to the list of transactions. Finally, the rule 
change amends Article VI, section 3 of the By-laws to add a JBO 
participants' account to the list of permissible accounts clearing 
members may maintain with OCC.

II. Discussion

    Section 17A(b)(3)(F) of the Act \4\ requires that the rules of a 
clearing agency be designed to assure the safeguarding of securities 
and funds which are in its custody or control or for which it is 
responsible. The Commission believes that the rule change is consistent 
with OCC's obligations under section 17A(b)(3)(F) because while it 
should result in OCC collecting less margin for positions which will be 
carried in JBO accounts, it has been designed to not impair OCC's 
protection against member default.
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
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III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular with section 17A of the Act \5\ and the rules and 
regulations thereunder.
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    \5\15 U.S.C. 78q-1.
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    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-OCC-99-05) be and hereby is 
approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-14115 Filed 6-3-99; 8:45 am]
BILLING CODE 8010-01-M