[Federal Register Volume 66, Number 150 (Friday, August 3, 2001)]
[Notices]
[Pages 40766-40770]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-19434]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44610; File No. SR-OCC-2001-07]


Self-Regulatory Organizations; Options Clearing Corporation; 
Notice of Filing of a Proposed Rule Change Relating to Clearing 
Security Futures

July 27, 2001.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on June 29, 2001, 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 on 
the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statements of the Terms of 
Substance of the Proposed Rule Change

    OCC is proposing rule changes to permit OCC to clear and settle 
security futures.

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 states 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 parts of these statements.
---------------------------------------------------------------------------

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Introduction
    In SR-OCC-2001-05, OCC filed with the Commission proposed 
amendments to its By-Laws specifying the types of markets for which OCC 
would clear security futures and describing the general terms on which 
it would clear for those markets. That rule change was approved by 
order of the Commission dated June 15, 2001.\3\ The purpose of this 
rule filing is to submit a full set of rule changes that will permit 
OCC to clear and settle transactions in security futures.
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 44434 (June 15, 2001), 
66 FR 33283.
---------------------------------------------------------------------------

    These rules are intended to be as generic as possible to cover any 
security futures product that may be developed by the markets clearing 
through OCC. Nevertheless, it may be necessary in the future to amend 
or supplement these rules to accommodate specific products that are 
developed by the markets.
2. Overview of Security Futures Rules
    Amendments to the By-Laws and Rules are in the same general format 
that has previously been used for new products. The proposed rules 
would provide for clearance and settlement of nearly the full range of 
security futures products that can be traded under the Commodity 
Futures Modernization Act. These include physically-settled futures on 
individual stocks as well as cash-settled futures on individual stocks 
and narrow-based stock indices. A further rule change would be required 
in order for OCC to clear options on security futures.
    The security futures provided for in this rule filing will have the 
same basic terms as futures contracts trading in the traditional 
futures markets under the jurisdiction of the Commodity Futures Trading 
Commission (``CFTC''). A futures contract is entered into at a contract 
price'' agreed upon between the buyer and seller in the futures market. 
The contract price represents the notional price or value at which the 
underlying stock or index will be purchased and sold at ``maturity'' of 
the contract if the contract has not been offset through an earlier 
closing transaction. The contracts will be marked to the daily closing 
price of the futures contract through ``variation payments'' that are 
passed through OCC from the buyer to the seller or vice versa depending 
upon the direction of the market movement. Intraday variation 
settlements are also provided for although it is OCC's present 
intention to effect intraday variation settlements only on an exception 
basis when market conditions or other factors make such settlements 
necessary or desirable. A deposit of ``original'' or ``risk'' margin 
will be required from both purchasers and sellers to cover the maximum 
anticipated variation payment that would likely be required (within 
usual confidence intervals) based on the clearing member's positions. 
This calculation will be made based upon all of the positions in the 
particular account of the clearing member using OCC's TIMS system for 
portfolio margining.
    A maturity of the contract, a ``final variation payment'' will be 
determined based on a ``final settlement price.'' The final settlement 
price will be the price or level of the underlying security at a 
specified point or interval in time, which could be either the closing 
price or a volume-weighted average price on the last day of trading of 
the futures contract or an opening price on the following day. In the 
case of cash-settled futures, all rights and obligations under the 
contract would be satisfied by the final variation payment. In the case 
of physically-settled security futures, delivery of and payment for the 
underlying stock would be effected pursuant to the same basic rules 
currently applicable to settlement of stock option exercises. The price 
to be paid by the purchaser is referred to as the ``aggregate purchase 
price'' and is equal to the final settlement price times the number of 
shares to be delivered. Effectively, delivery occurs at the current 
market price of the stock, but the net of the variation payments paid 
and received over the period that the futures contract was held puts 
the buyer and seller in the economic position of having purchased and 
sold the security at the original contract price.
    Because a security future is both a ``security'' as defined in the 
Act and a

[[Page 40767]]

``contract for sale of a commodity for future delivery'' as defined in 
the Commodity Exchange Act (``CEA''), security futures are subject to 
the joint jurisdiction of the Commission and the CFTC. One result of 
this novel arrangement is that security futures may in certain 
circumstances be carried by clearing members for their customers in 
futures ``customer segregated funds'' accounts subject to the CEA and 
rules thereunder, and in other circumstances they may be carried in 
securities accounts subject to the Securities Investor Protection Act 
and Commission Rule 15c3-3 as well as other customer protection rules 
under the Act. When security futures are carried in segregated funds 
accounts at the member firm level, we have assumed that the CFTC will 
require that they also be carried in segregated funds accounts at the 
clearing level. Accordingly, OCC is proposing to add a ``customer 
segregated funds'' account to the types of accounts that a clearing 
member is able to carry at OCC.
    OCC is also proposing to permit futures clearing organizations 
(``derivative clearing organizations'' registered as such under the 
CEA) to carry omnibus accounts at OCC for the purpose of clearing 
transactions in security futures on behalf of their clearing members 
that are not clearing members of OCC. A futures clearing organization 
could establish one such account for clearing its members' proprietary 
transactions and a second segregated funds account for members' 
customer transactions.
    OCC has provided below a more detailed description of specific 
changes and additions to the By-Laws and Rules. Some changes, however, 
seemed sufficiently obvious in their purpose and effect so that no 
further explanation has been provided.
3. Summary of By-Law Changes
    i. Definitions. Because the various terms needed to describe 
security futures are used throughout the by-Laws and Rules, OCC 
purposes to include all necessary new definitions in Article I of the 
By-Laws. Necessary terms have been adopted and defined to correspond as 
closely as possible to the terminology used in the existing futures 
markets while also being consistent with terminology in OCC's rules. 
Certain terms were included in SR-OCC-2001-05, referred to above. 
Others are added in this rule change, and various existing definitions 
are amended so that they apply to security futures as well as options. 
Most of these definitions are self-explanatory, but a few terms that 
are of particular significance are described below. Certain defined 
terms are discussed later on in connection with the substantive 
provisions of the rules where they are used.
    The terms ``class'' and ``series'' are amended in order to apply to 
futures even though such terms are not widely used, if at all, in the 
futures industry. Such terms are consistent with securities terminology 
and OCC's existing rules. As in the case of options, the term 
``series'' is used to define a set of security future contracts that 
are mutually identical and therefore fungible. The term ``series 
marker'' is used to describe a unique identifier that may be assigned 
to the particular market on which a series is traded. Because the 
series marker is considered a term of the security future, the effect 
of the marker is that contracts of a series bearing that unique series 
marker are not fungible with contracts traded on another exchange even 
if those contracts have otherwise identical terms. Whether or not a 
series of security futures will bear a series marker is a decision to 
be made by the market that trades the series.
    The term ``contracts'' has been made lower-case to reflect a more 
generic definition. It is now used to refer to any ``cleared 
security,'' which includes security futures as well as broad-based 
index futures that are included in cross-margining arrangements. This 
broad usage is reflected primarily in the margin rules in Chapter VI of 
the Rules.
    The definitions of ``nominated correspondent'' and ``nominating 
clearing member'' are being deleted as this particular agency 
relationship is no longer used. References to these terms are deleted 
throughout the By-Laws and Rules.
    ii. Clearing Members Qualifications. The interpretations and 
Policies following Article V, Section 1 of the By-Laws are amended to 
adapt those requirements to clearing members that clear security 
futures. Because some of those clearing members may be futures 
commission merchants (``FCMs'') primarily regulated as such and only 
notice-registered as broker-dealers under Section 15(b)(11)(A) of the 
Act, it is necessary to provide alternative membership requirements in 
certain cases. For example, in the area of experience and competence, 
OCC has proposed to retain some flexibility in this regard by saying 
that such clearing members must meet ``such other non-discriminatory 
standards of experience and competence as the Corporation may 
prescribe.'' In addition, interpretation .06 under Section 1 provides 
that OCC may give expedited review and may waive certain non-financial 
criteria where appropriate in order to admit affiliates of existing 
clearing members for the sole purpose of clearing security futures. 
Some clearing members do their futures business through an affiliate, 
and OCC believes that it is appropriate to give special consideration 
to such affiliates to the extent that their affiliation with an 
existing clearing member provides access to competent and experienced 
personnel able to assist the affiliate if necessary to enable the 
affiliate to meet OCC's operational requirements.
    iii. Accounts for Clearing Security Futures. OCC is amending 
Article VI, Section 3 of the By-Laws to provide an additional account, 
the segregated futures account, for the clearance of transactions of 
``futures customers,'' which are defined in Article I to mean persons 
whose positions are carried by an FCM in a futures account required to 
be segregated under Section 4d of the CEA. A clearing member might 
carry customer positions in a futures account rather than a securities 
account either because it is primarily regulated as a FCM and does not 
carry securities accounts or because it is a dual registrant (fully 
registered both as an FCM and a broker-dealer) and the clearing member, 
or the clearing member and its customer, choose to carry security 
futures in a futures account.
    The segregated futures account is essentially like a combined 
market-maker account in that the positions of different futures 
customers are commingled in it, and OCC's lien extends to all 
positions, margin, and other assets in the account. OCC can liquidate 
the account to a single net debit or credit in the event of a clearing 
member default and can therefore margin it on a net basis as it does a 
combined market-maker account. Unlike the regular customers' account, 
which is a securities account, there is no need to hold ``fully-paid 
and excess margin securities'' free of any liens because the customer's 
futures account at the clearing firm level is not subject to Commission 
Rule 15c3-3.
    iv. General Clearance Rules. The provisions of Article VI of the 
By-Laws were originally drafted to apply to transactions in stock 
options. Over the years, they have been amended and replaced and 
supplemented by provisions in other articles to provide for the 
clearance of other products. OCC has followed this pattern in the 
present rule change.
    Provisions of Article VI, Section 3 relating to the ``firm 
account'' have been modified to provide that it may only be used for 
transactions of the firm itself and persons who are not customers

[[Page 40768]]

either for purposes of the CEA and CFTC regulations or for purposes of 
the securities laws and regulations, principally Rule 15c3-3 and the 
hypothecation rules.\4\ In addition to the foregoing changes, and 
largely unrelated to security futures, OCC is amending Section 3 to 
eliminate references to ``specialists,'' which references are rendered 
unnecessary be changes in the Article I definition of ``market-maker'' 
to include specialists. In addition, OCC is proposing to eliminate the 
stock specialist and registered trader accounts because OCC believes 
that no such accounts are currently in use. The definition of a 
``market-maker'' has been expanded to include all types of proprietary 
trading done pursuant to rules that are intended to ensure that such 
trading serves a market function. This change will allow positions of 
stock specialists and registered traders to be carried in a market-
maker account.
---------------------------------------------------------------------------

    \4\ 17 CFR 240.8c-1 and 240.15c2-1.
---------------------------------------------------------------------------

    Sections 4 through 9 of Article VI of the By-Laws are amended to 
make them applicable to security futures and to eliminate certain 
redundancies and unnecessary material. A new paragraph (d) has been 
added to Section 10, which relates to the establishment of terms of 
cleared securities and the opening of new series, in order to provide 
for security futures. In addition, the provisions setting deadlines for 
the various markets to notify OCC of the opening of new series in any 
cleared security have been updated and consolidated in a new paragraph 
(e), which permits OCC to announce such deadlines from time to time. 
The advance notice that is actually currently required by OCC is 
generally much shorter than the deadlines specified in Section 10 as a 
result of improvements in efficiency that make the longer notice 
periods unnecessary. Sections 11 through 18 are amended to apply to 
security futures.
    Section 19 of Article VI, which relates to shortages of underlying 
securities, makes parallel provisions for physically-settled security 
futures. It is worth noting that in the case of security futures, the 
economic result of the futures contract is primarily realized through 
the stream of variation payments and that the stock is delivered 
against current market value at maturity of the future. Accordingly, if 
a shortage of underlying securities makes delivery impossible or unduly 
burdensome, OCC may elect simply to terminate delivery and payment 
obligations and let the final variation payment completely satisfy all 
rights and obligations under the contract. If, for some reason, the 
circumstances suggest that the final settlement price should be 
adjusted in any way to reflect that no delivery will occur, the 
provisions of amended Section 19 give OCC the authority to do so.
    v. New Article XII of the By-Laws. This article sets out some basic 
provisions for security futures, including both physically-settled and 
cash-settled security futures. The general rights and obligations of 
buyers and sellers of security futures, including the obligation to 
make and the right to receive variation payments, are set forth here.
    Section 3 pertains to adjustments of the terms of outstanding 
security futures in response to certain events affecting the underlying 
securities that make adjustments necessary or appropriate in the 
interest of fairness to buyers and sellers. Section 3 sets out detailed 
adjustment rules for security futures while the detailed provisions for 
adjustment of narrowbased index futures are set forth in Section 4.
    Adjustments to security futures will be necessary from time to time 
to reflect certain corporate events affecting the underlying stock. 
Such adjustments will be determined by OCC rather than by an 
``adjustment panel'' under the provisions of existing Article VI, 
Section 11 of the By-Laws. However, the adjustment rules for security 
futures are substantially parallel to the adjustment rules for stock 
options, and the adjustment rules in Section 4 for narrow-based index 
futures are parallel to the adjustment rules for index options. OCC 
anticipates a policy of coordinating discretionary adjustment 
determinations for consistency between adjustments of security futures 
and option contracts on the same underlying stock to the fullest extent 
practicable.
    Futures contracts are ordinarily like European-style options in the 
sense that there is no opportunity to ``exercise'' or terminate the 
contract prior to its expiration or maturity date (other than through 
closing transactions in the market). There are currently no European-
style options on individual stocks, and security futures may therefore 
be adjusted differently than options on the same securities. For 
example, where a warrant or right is distributed that expires before 
the maturity date of a security future or expiration date of a stock 
option, the security future may not be adjusted to reflect that 
distribution whereas an American-style option on the same security 
ordinarily would be adjusted.
    Where the adjustment rules call for adjustment in the exercise 
price of an option, the corresponding adjustment for futures contracts 
would be to make a one-time only adjustment in the last settlement 
price established before the adjustment is effective for use in 
determining the correct daily variation payment or the adjusted 
contracts. Cash-settled security futures ordinarily will be adjusted in 
accordance with the same rules as physically-settled security futures 
and options. Where physically-settled contracts are adjusted by 
adjusting the underlying to include distributed property, the 
appropriate adjustment to the cash-settled contract could be different 
if there is no public market in which the distributed property will be 
traded for purposes of establishing market values thereafter.
    Article XII, Section 5, which anticipates situations in which a 
market price for an underlying stock or a current value of an 
underlying index might be unavailable or inaccurate, is essentially 
parallel to the provisions of Article XVII, Section 4, which applies to 
index options. The rule applies not only to narrow-based index futures, 
but also to cash-settled and physically-settled security futures. The 
reason for this is that security futures, unlike stock options, require 
a determination of ``final settlement price'' at maturity. Whereas 
settlement of an exercised stock option is effected by delivery of the 
stock against the exercise price of the option, settlement at maturity 
of a security future involves a final variation payment based on the 
final settlement price, which is also the price against which the 
underlying stock is delivered if the future is physically-settled.
    Section 6 of Article XII provides that the final settlement price 
for any security future at maturity is determined by a method approved 
by the market listing the security future. It could be based on a price 
or level of the underlying interest at a point in time, such as a 
closing value or opening value for a stock or index on the maturity 
date or the following business day, or it could be based on an average 
of prices, such as the volume-weighted average price for an underlying 
stock on the maturity date.
4. Rules
    i. Financial Requirements for Clearing Members. Financial 
requirements are substantially the same for all clearing members, 
whether or not they clear transactions in security futures. However, 
because OCC will admit clearing members that are merely notice 
registered as broker-dealers under Section 15(c)(11)(A) of the Act and 
are primarily regulated as FCMs under the CEA and the rules of the 
CFTC, OCC financial requirements in rule 301 that

[[Page 40769]]

are based on Commission financial requirements are being supplemented 
to provide appropriate references to corresponding CFTC requirements. 
It will be OCC's policy as nearly as practicable to provide 
substantively identical requirements for all clearing members whether 
their primary regulator is the Commission or the CFTC.
    ii. Trade Reporting and Matching. Trade reporting and matching will 
occur for security futures in essentially the same way as for options. 
Rule 401 sets forth the information required to be specified in matched 
trade reports. As noted above, such information in the case of security 
futures may include, if a market so elects, a series marker that 
prevents contracts traded on that market from being treated as fungible 
(except for margin and expiration settlement purposes) with otherwise 
identical futures contracts traded on other markets cleared by OCC. 
Following the practice in the futures markets, OCC will not require 
that matched trade information submitted by a market identify each 
trade as opening or closing. OCC understands that some markets may not 
have systems capable of making such identifications. If a market elects 
to submit trade information without identification as to whether the 
transaction is opening or closing, OCC will treat all transactions as 
opening transactions. Each clearing member must then submit gross 
position adjustment information at the end of the day to reduce its 
positions to reflect the actual open interest in accounts carried by 
the clearing member. These procedures are consistent with current 
practice on many futures exchanges.
    iii. Variation Settlement. Daily variation settlements and final 
variation settlements will be netted by account with other daily cash 
settlements and settled in accordance with OCC's usual cash settlement 
procedures. Chapter V of OCC's rules is being renamed ``Daily Premium 
and Futures Variation Settlement.'' The rules in Chapter V are being 
modified as necessary to include futures variation payments.
    iv. Margins. Rules 601 and 602 are being amended to include 
security futures in the calculation of the ``risk margin'' required for 
each account of a clearing member. The term ``risk margin'' is 
replacing the term ``additional margin'' for options as well as 
security futures because OCC believes it is more descriptive. Risk 
margin, which is sometimes known as ``initial margin'' in the futures 
markets, is the margin intended to cover one day's anticipated market 
movement. Security futures (whether physically-settled or cash-settled) 
will be margined under Rule 601, which is applicable to equity options. 
Narrow-based index futures will be margined under Rule 602, which is 
applicable to index options and other non-equity options. Note that 
OCC's margin systems already provide for risk-based margining of index 
futures contracts in cross-margining accounts. Accordingly, this rule 
change merely extends the margin rules to cover security futures and 
makes other minor changes to adapt the rule to security futures. There 
is no substantive change in the way in which margin is calculated. 
Minor changes in other rules in Chapter VI are being proposed to adapt 
the rules for security futures.
    OCC will not, at least initially, accept escrow deposits of 
underlying securities to collateralize positions in security futures. 
OCC has no present plans to include security futures in any cross-
margining arrangement to allow security futures to be pledged under 
Rule 614.
    Because each long and short position in a futures contract 
represents both an asset and a liability, futures contracts should 
never be deemed to be ``fully paid securities'' or ``excess margin 
securities'' within the meaning of Commission Rule 15c3-3. Therefore, 
neither long or short positions in security futures will be required to 
be ``segregated'' under OCC Rule 611.\5\
---------------------------------------------------------------------------

    \5\ Rule 611 allows clearing members to comply with Commission 
Rule 15c3-3 by holding customers' fully paid long option positions 
free of OCC's lien. (The rule allows clearing members to 
``unsegregate'' long positions that are components of customer 
spreads, which has the effect of pledging those positions to OCC in 
exchange for reduced margin.)
---------------------------------------------------------------------------

    v. Delivery of and Payment for Underlying Stock. The provisions of 
Chapter IX of the rules relating to delivery and settlement in 
connection with exercises of stock options are being made applicable to 
physically-settled security futures without substantive change. As in 
the case of stock option exercises, delivery, and settlement with 
respect to security futures will ordinarily take place through the 
National Securities Clearing Corporation (``NSCC''). The only 
significant difference is that in the case of security futures the 
stock will settle at NSCC against the final settlement price, which 
will be essentially the current market value of the stock as of the 
date when the futures contract matures. Because option exercises settle 
at the exercise price, which can be deep in the money, settlement of 
option exercises imposes risks on NSCC that have been covered in an 
elaborate collateral sharing arrangement known as the ``NSCC Accord.'' 
OCC anticipates that it will have a much simpler agreement with NSCC 
for stock settlements arising from security futures contracts. Delivery 
obligations arising from security futures will be netted, but they will 
not be netted with exercise settlements of option contracts because of 
the differences in the arrangements with NSCC under which the two types 
of transactions are settled.
    The provisions in Chapter IX relating to stock settlements that 
cannot be completed through NSCC have been adapted to apply to 
settlements arising from security futures as well. Similarly, the same 
basic buy-in and sell-out rules have also been made applicable.
    vi. Clearing Fund Contributions. Security futures will be covered 
by the same clearing fund that stands behind all options cleared by 
OCC. Contributions of individual clearing members to the fund are based 
on the proportion that their average daily margin requirement bears to 
the average daily margin requirements of all clearing members, subject 
to a minimum contribution of $150,000. A special provision is being 
added to Rule 1001, however, to provide that an affiliate of an 
existing clearing member that becomes a clearing member of OCC for the 
purpose of clearing transactions in security futures will not be 
subject to the $150,000 minimum clearing fund contribution as long as 
the existing clearing member is in compliance with OCC clearing fund 
requirements and the affiliate is in compliance with its calculated 
clearing fund requirement. OCC believes that it would be inappropriate 
to require an additional $150,000 payment merely because a clearing 
member chooses, or may be forced because of systems or for other 
reasons, to clear security futures through an affiliate.
    vii. Suspension of Clearing Members and Liquidation of Accounts. 
The provisions of Chapter XI of OCC's rules will apply to clearing 
members carrying positions in security futures in essentially the same 
way as they apply to clearing members carrying positions in options. 
Security futures will be liquidated subject to the same basic rules as 
options. The proposed changes in the rules are intended to apply as 
precisely as possible the logic of the existing rules to the 
liquidation of security futures. This task is complicated by the fact 
that security futures are quite different from options in ways that 
have important consequences for the structure of these rules. For 
example, a security future is both an asset and a liability, and 
accordingly the ``seller'' of a security

[[Page 40770]]

future, unlike the writer of an option, may be making rather than 
receiving a payment. Both short positions and long positions in 
security futures are treated as ``securities'' under these rules, and 
hence the proceeds from positions in security futures, whether 
resulting from a closing transaction or from a variation payment, are 
treated like premiums received on the closing sale of an option. Since, 
as noted above, futures in the (securities) customers' account are 
always ``unsegregated'' (for purposes of Rule 611), there is no need 
for rules relating to the disposition of ``segregated'' security 
futures.
    OCC is also taking this opportunity to clarify in Rule 1105(d) 
that, where a charge is appropriately made against a market maker 
account, it will be made against that account and only any shortfall 
will be charged against the Liquidating Settlement Account. This is not 
a substantive change as the rules and the provisions of the market 
maker account agreements have always been interpreted in this way.
    viii. New Chapter XIII. Following past practice for new products, 
OCC is proposing a new chapter of the rules relating to security 
futures. Rule 1301 sets forth the method for determining the amount of 
variation payments, including the final variation payment. It is 
anticipated that variation settlement will be affected only once each 
business day and that OCC would respond to unusually large intraday 
price moves by requiring additional risk margin. However, the proposed 
rules would give OCC the flexibility to effect an additional, intraday 
variation settlement if OCC deems such payment to be appropriate in 
unusual market conditions or to coordinate its actions with those of 
other clearing organizations.
    Rule 1302 provides for delivery of stocks underlying physically-
settled security futures that have reached maturity. This is 
accomplished primarily by cross-reference to the rules in Chapter IX. 
Rule 1303 provides that ``associate clearinghouses'' may clear 
transactions in security futures through OCC on an omnibus basis on 
behalf of their members that are not clearing members of OCC. Associate 
clearinghouses will be treated like any other clearing member for most 
purposes under the rules. OCC anticipates that one or more futures 
clearing organizations will become associate clearinghouses of OCC. The 
agreements under which these associate clearinghouses will operate have 
not yet been negotiated. There is precedent for such arrangements, 
however, in that OCC had such a relationship with the clearinghouse for 
the European Options Exchange (``EOE'') at a time when OCC-issued 
options were traded on EOE.\6\
---------------------------------------------------------------------------

    \6\ Securities Exchange Act Release No. 24832 (August 21, 1987), 
52 FR 32377. The Commission notes that the order required OCC to 
file with the Commission under Rule 19b-4 of the Act any new 
international market agreement. The Commission expects OCC to 
undertake the same obligation with regard to future operating 
agreements it makes with any associate clearinghouse.
---------------------------------------------------------------------------

    The proposed rule change is consistent with the purposes and 
requirements of Section 17A of the Act because it fosters cooperation 
and coordination with persons engaged in the clearance and settlement 
of securities transactions, removes impediments to and perfects the 
mechanism of a national system for the prompt and accurate clearance 
and settlement of securities transactions, and, in general, protects 
investors and the public interest.

(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 are 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 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 
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 will also be available for inspection and copying 
at the principal office of OCC. All submissions should refer to File 
No. SR-OCC-2001-07 and should be submitted by August 24, 2001.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-19434 Filed 8-2-01; 8:45 am]
BILLING CODE 8010-01-M