[Federal Register Volume 64, Number 113 (Monday, June 14, 1999)]
[Notices]
[Pages 31889-31890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14991]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41486; SR-OCC-99-01]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change Relating to Acceptance of 
Letters of Credit for Margin Purposes

June 7, 1999.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on January 22, 1999, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change 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 from interested persons on the proposed rule change.
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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 modify OCC's rules with respect to 
letters of credit accepted for margin purposes.

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

    The proposed rule change will conform OCC's Rule 604(c) to the 
terms of the Uniform Letter of Credit (``ULC'') created by the Unified 
Clearing Group (``UCG''). The UCG is an organization composed of all 
major securities and futures clearing organizations and depositories in 
the United States.\3\ The ULC was developed to foster uniformity among 
the various U.S. securities and futures clearing organizations with 
respect to the acceptable terms of letters of credit that are deposited 
as margin.\4\ All UCG member that accept letters of credit as margin 
are expected to use the ULC and to convert to the ULC during calendar 
year 1999.
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    \3\ The members of the UCG include the Boston Stock Exchange 
Clearing Corporation, The Depository Trust Company, Government 
Securities Clearing Corporation, MBS Clearing Corporation, National 
Securities Clearing Corporation, OCC, Board of Trade Clearing 
Corporation, Chicago Mercantile Exchange, Clearing Corporation of 
New York, Kansas City Board of Trade, Minneapolis Grain Exchange, 
New York Mercantile Exchange, Emerging Markets Clearing Corporation, 
and Clearing Corporation for Options and Securities.
    \4\ In developing the ULC, UCG consulted with several letter of 
credit issuing banks and the National Standby Letter of Credit 
Committee of the International Financial Service Association 
(formerly known as the U.S. Council on International Banking). In 
addition, various regulatory agencies, including the staffs of the 
Securities and Exchange Commission, the Commodity Futures Trading 
Commission, and Board of Governors of the Federal Reserve System 
attended the UCG meetings where the ULC was discussed.
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    Under the terms of the ULC, clearing corporations can continue to 
present a demand for payment by hand delivery and/or SWIFT message.\5\ 
The ULC also permits a demand for payment by facsimile transmission. 
However, unlike the current letters of credit accepted by OCC, the ULC 
does not permit a demand by tested telex.
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    \5\ SWIFT messages are secured, electronic transmissions.
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    The rule change proposes to make several amendments to Rule 604(c). 
First, it will require the issuing bank to make payment against the 
letter of credit within sixty minutes of presentment for payment if the 
demand is made by a preset cutoff time on a business day, which OCC 
specifies in its rules as 3:00 p.m. Central Time. Demands submitted to 
the bank after the cut-off time or on a day when the bank is closed 
must be honored within sixty minutes of the opening of business on the 
next business day. Certain exceptions will be made in the case of 
foreign currency letters of credit.
    Second, the rule change will permit OCC flexibility in specifying 
acceptable expiration dates for letters of credit. Currently OCC 
requires that a letter expire no later than the first day of the next 
calendar quarter but is considering permitting letters of credit to be 
issued with expiration dates more than one calendar quarter in the 
future. In order to simplify recordkeeping, OCC presently anticipates 
that it will continue to require the replacement of outstanding letters 
of credit with newly issued letters of credit on an annual basis.
    Third, the rule change will eliminate provisions that permit a 
clearing member to issue instructions to OCC that restrict a previously 
unrestricted letter of credit or a portion thereof to serve as margin 
only for the clearing member's customers' accounts. These provisions 
have generally not been used, and clearing members who need to restrict 
letters of credit to the customers' accounts for regulatory compliance 
purposes may do so by placing such restriction on the letter itself. 
OCC believes that a restriction on the face of the letter will provide 
better notice of the restriction and should reduce the likelihood of 
confusion over which letters are intended to be restricted and which 
are not.
    Finally, the proposed rule deletes the final sentence of Rule 
604(c), which allows members to deposit letters of credit denominated 
in any foreign currency that is a trading currency, because it is 
unnecessary in light of other provisions proposed for Rule 604 that 
specify letters of credit may be denominated in any currency approved 
by OCC for that purpose.
    OCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act and the rules and regulations 
thereunder because, among other things, it will promote the prompt and 
accurate clearance and settlement of transactions in securities by 
requiring issuing banks to make payment against letters of credit 
within sixty minutes of a demand for payment rather than by the close 
of the third banking day following presentation of a demand for payment 
as is presently the case.

(B) Self-Regulatory Organization's Statement on Burden on Completion

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

[[Page 31890]]

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

    No comments on the proposed rule change were solicited or received. 
OCC will notify the Commission of any written comments it receives.

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 the self-regulatory organization consents, 
the Commission will:

    (a) By order approve the 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, including whether the proposed rule 
change is consistent with the Act. 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-
0609. 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. 552, will be available for inspection and copying in the 
Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. 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-99-01 and should be 
submitted by July 6, 1999.

    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. 99-14991 Filed 6-11-99; 8:45 am]
BILLING CODE 8010-01-M