[Federal Register Volume 65, Number 112 (Friday, June 9, 2000)]
[Notices]
[Pages 36750-36751]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-14595]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42897; File No. SR-OCC-99-9]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving a Proposed Rule Change To Merge the Equity and Non-
Equity Elements of OCC's Clearing Fund

June 5, 2000.
    On September 24, 1999, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change (File No. SR-OCC-99-9) 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 December 8, 
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. 42195 (December 1, 
1999), 64 FR 68712.
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I. Description

    Under the rule change, OCC will merge the equity and non-equity 
elements of its clearing fund into combined clearing fund. A member's 
contribution to the combined clearing fund will be based on the 
member's total margin requirements, with a minimum contribution of 
$150,000.\3\
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    \3\ According to OCC, almost all clearing members already 
contribute to both the equity and non-equity elements of the 
clearing fund and thus are subject to the $75,000 minimum 
contribution for each element. For those members, a merger of the 
two elements into one combined clearing fund will clause no 
aggregate change in the size of their clearing fund contribution. 
Five clearing members clear either only equity or only non-equity 
products and therefore contribute to only one element of the 
clearing fund. Three of these five members, however, will not have 
their contributions affected by the proposed $150,000 minimum. Thus, 
the merger of the two elements into one clearing fund will not 
materially change the overall size of the clearing fund and will not 
have a minor impact on a small number of members.
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    In 1982, when OCC first began clearing non-equity products, 
including treasury, currency, and stock index options, OCC instituted a 
separate non-equity element to the clearing fund to limit the impact of 
a member default in one product base (i.e., either equity or non-
equity) on members trading only the other product base. The element of 
the clearing fund applicable to the product(s) involved in the default 
would be utilized first; only after that element was exhausted would 
the other element be used. Beginning in 1986, with the introduction of 
the Theoretical Intermarket Margin System (``TIMS'') for non-equity 
products, some margin offsets were allowed between equity and non-
equity products. Such offsets further expanded following the 
implementation of TIMS for equity products in 1991. The blurring of the 
distinction between equity and non-equity margin requirements and the 
integration of OCC's equity and non-equity systems in general has 
reached a level such that clearing members only receive a single margin 
requirement each day. OCC computes distinct equity and non-equity 
margin requirements only on a monthly basis for the purpose of 
determining the size of each element of the clearing fund.
    Consistent with Article VIII, Section 2 of OCC's Bylaws, OCC will 
issue a memorandum to its clearing members at least five business days 
prior to the effective date of the rule change advising them of the 
change in the minimum contribution and advising them of their ability 
to withdraw from membership should they choose not to make the required 
clearing fund contribution.

II. Discussion

    Section 17A(b)(3)(F) \4\ of the Act requires that the rules of a 
clearing agency be designed 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. The Commission finds that combing the two 
clearing funds will have no effect on OCC's margining and risk 
management procedures that protect OCC against a member default. As a 
result, OCC will maintain its current level of protection while 
enhancing the efficiency of its operations. Accordingly, the rule 
change is consistent with OCC's obligation to safeguard securities and 
funds which are in OCC's custody or control.
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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 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of 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-99-9) be, and hereby is, 
approved.


[[Page 36751]]


    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority. \5\
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    \5\ 17 C.F.R. 200.30-3(a)(12).
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Margaret H. McFarland
Deputy Secretary.
[FR Doc. 00-14595 Filed 6-8-00; 8:45 am]
BILLING CODE 8010-01-M