[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