[Federal Register Volume 64, Number 174 (Thursday, September 9, 1999)]
[Notices]
[Pages 49039-49040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23390]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41810; File No. SR-OCC-99-01]
Self-Regulatory Organizations; The Options Clearing Corporation;
Order Approving a Proposed Rule Change Relating to the Acceptance of
Letters of Credit for Margin Purposes
August 30, 1999.
On January 22, 1999, The Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange Commission (``Commission'') a
proposed rule change (File No. SR-OCC-99-01) pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ to permit
OCC to replace its current letter of credit form with a letter of
credit form developed by the Uniform Clearing Group (``UCG'').\2\
Notice of the proposal was published in the Federal Register on June
14, 1999.\3\ On August 2, 1999, OCC amended the proposed rule
change.\4\ 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\ The UCG is an organization composed of all major securities
and futures clearing organizations and depositories in the United
States. 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.
\3\ Securities Exchange Act Release No. 41486 (June 7, 1999), 64
FR 31889.
\4\ The amendment filed by OCC was a technical amendment to the
proposed rule change and as such did not require republication of
the notice.
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I. Description
The rule change will amend OCC's Rule 604(c) to incorporate the use
of the Uniform Letter of Credit (``ULC'') created by UCG. First, the
rule change will require the issuing bank to make payment against the
ULC within sixty minutes of presentment of a demand for payment.
Second, the rule change will add a new paragraph to Rule 604(c) that
gives OCC flexibility in specifying acceptable expiration dates for the
ULC. Third, the rule change will delete the provisions of OCC's rules
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. Finally, the rule change will delete the last sentence of
Rule 604(c)(4), which allows members to deposit letters of credit
denominated in any foreign currency that is a trading currency.
II. Discussion
Section 17A(b)(3)(F) \5\ of the Act requires that the rules of a
clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions, to assure the
safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible, and to
foster cooperation and coordination with persons engaged in the
clearance and settlement of securities transactions. As set forth
below, the Commission finds that the rule change is consistent with
OCC's obligations under the Act.
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\5\ 15 U.S.C. 78q-1(b)(3)(F).
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By shortening the time period from the third banking day to 60
minutes, the proposed rule change should reduce the likelihood that OCC
will be unable to fulfill its settlement obligations while it waits for
a issuing bank to honor its demand on a letter of credit.
Currently, OCC requires that a letter of credit expire no later
than the first day of the next calendar quarter. By allowing letters of
credits to be issued with expiration dates more than one calendar
quarter in the future, OCC may be able to simplify its record-keeping,
and its members may be able to reduce their costs associated with
obtaining letters of credit.
According to OCC, clearing members generally do not use the
provisions that permit a clearing member to restrict a previously
unrestricted letter of credit. Furthermore, placing the restriction on
the face of the letter of credit may
[[Page 49040]]
provide better notice of the restriction and should reduce the
likelihood of confusion over which letters are intended to be
restricted and which letters are not. Finally, by expressly stating
that letters of credit may be denominated in any foreign trading
currency is unnecessary in light of other provisions in OCC's rules
that specify that letters of credit may be denominated in any currency.
The Commission also finds that the rule change is consistent with
OCC's obligations under the Act to foster cooperation and coordination
with persons engaged in the clearance and settlement of securities
transactions. The ULC was developed by OCC and the other members of the
UCG to foster uniformity among the various U.S. securities and futures
clearing organizations with respect to letters of credit that are
deposited as collateral. This uniformity will help reduce operational
burdens for securities and futures industry participants and their
letter of credit issuers. It should also enhance the legal certainty
that the letters of credit received by OCC and other UCG members as
collateral will be enforceable.
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 Section 17A of the Act and the rules and regulations
thereunder.
It Is Therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-OCC-99-01) 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-(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-23390 Filed 9-8-99; 8:45 am]
BILLING CODE 8010-01-M