[Federal Register Volume 64, Number 116 (Thursday, June 17, 1999)]
[Notices]
[Pages 32600-32601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-15358]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41507; File No. SR-OCC-99-04]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of a Proposed Rule Change Relating to Amendments to
the Pledge Program
June 10, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on March 8, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
Under the proposed rule change, OCC will permit clearing members to
pledge long positions in non-proprietary cross margin accounts through
its pledge program. In addition, OCC will update its rules to reflect
the way that the pledge program currently operates.
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\
---------------------------------------------------------------------------
\2\ The Commission has modified the text of the summaries
prepared by OCC.
---------------------------------------------------------------------------
(A) Self-Regulatory Organizations's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
OCC's market maker pledge program was designed to facilitate the
ability of clearing members to finance their positions by permitting
them to pledge excess long market maker options as collateral to obtain
loans from banks or other clearing members.\3\ Current eligible account
types include, among others, a combined market-makers' account and a
separate market-maker's account.
---------------------------------------------------------------------------
\3\ For a detailed description of the pledge program, refer to
Securities Exchange Act Release No. 19956 (July 19, 1983), 48 FR
33956 [File No. SR-OCC-82-25] (order approving proposed rule
change).
---------------------------------------------------------------------------
Market-makers, specialists, and registered traders are categories
of market professionals that are eligible to have their positions
included in a clearing members' non-proprietary cross margin account,
and many such market professionals participate in cross margining. OCC
believes that it is an appropriate extension of the purposes of the
pledge program to permit long options carried in a non-proprietary
cross margin account to be pledged to facilitate clearing member
financing needs. As a result, under the rule change OCC will amend Rule
614 to add non-proprietary cross margin accounts to the list of
accounts that are eligible for the pledge program.
In addition, OCC will update certain of the terms of Rule 614. Some
of the practices described in the rule are no longer used, and OCC will
eliminate references to those obsolete practices and revise the rule to
reflect the current pledge program operation. For example, OCC's system
does not ``transfer'' pledge cleared securities into a separate
``pledge account'' as suggested by the rules. Rather, OCC identifies
within the ``primary'' account those long positions in a cleared
security that a clearing member has instructed OCC that it desires to
pledge. In addition, certain instructions or reports are not submitted
or distributed by hard copy form but are electronically inputted or
disseminated through OCC's C/MACS system. (Hard copy forms are used as
acceptable backups should C/MACS be unavailable.) As such, OCC will
eliminate reference to ``transfers,'' ``Transfer Day,'' ``Primary
Accounts,'' and certain ``forms.'' Instead, OCC will substitute where
appropriate more generic terms like ``identifying'' cleared securities
to be pledged, ``Activity Day,'' ``Eligible Account,'' ``pledged and
unpledged cleared securities,'' and ``instructions'' as being more
descriptive of current pledge program processing. In addition, clearing
member designations among pledgees can be carried out electronically or
through use of the pledgee designation form. The rule will also be
amended to reflect this practice.
Further, OCC will eliminate references to lock box distribution of
reports. Clearing members receive OCC reports electronically through C/
MACS. Other pledges also receive reports by electronic format from OCC
or have other arrangements with OCC for purposes of receiving reports.
Accordingly, there is no longer any need to refer to lock box report
distribution. Instead, report distribution will be accomplished in
accordance with the procedures agreed between OCC and each pledgee.
Finally, OCC will change the time at which the release of a pledged
cleared security is effective. Currently, the rule provides that the
release is deemed to be effective as of 9:00 a.m. (central time) on the
transfer day and all rights of a pledgee as to such released cleared
security are terminated at that time. However, this effective time
comes after OCC nightly processing is completed. During nightly
processing, the long positions in cleared securities are released from
pledge, included in marginable positions, and used to offset short
positions as described in Rules 601 and 602. Pledgee banks have the
understanding that when they execute the instructions to release
pledged positions they release their rights in the long positions and
take appropriate measures to ensure that the loan is repaid or
otherwise secured. Accordingly, OCC is proposing to alter the time at
which as pledge is deemed to be released. That time will be the
[[Page 32601]]
cutoff time for submitting the instructions to release pledge positions
on the receipt day. OCC believes that this change is consistent with
the expectations of clearing members, pledgees, and of OCC as to when
each party has rights in the pledged long positions.
In addition to the amendments described above, conforming changes
will be made to Rules 601, 602, 1105, and 1106 and to the pledge
account agreement.\4\
---------------------------------------------------------------------------
\4\ OCC attached a copy of the amended pledge account agreement
as Exhibit A to its filing, which is available for inspection and
copying in the Commission's public reference room and through OCC.
---------------------------------------------------------------------------
OCC believes that the proposed rule change is consistent with
Section 17A of the Act \5\ and the rules and regulations thereunder
because it provides for expanded clearing member financing
opportunities and updates OCC's pledge program rule to reflect current
practices.
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------
(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 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, 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, NW, Washington, DC 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, NW,
Washington, DC 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-99-04 and should be submitted by July
8, 1999.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\6\
---------------------------------------------------------------------------
\6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-15358 Filed 6-16-99; 8:45 am]
BILLING CODE 8010-01-M