[Federal Register Volume 68, Number 17 (Monday, January 27, 2003)]
[Notices]
[Pages 3919-3920]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-1707]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47199; File No. SR-OCC-2002-25]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Amending the Definition of Market-Maker in OCC's By-Laws

January 15, 2003.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 17, 2002, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change amends the definition of the term market-
maker as used in OCC's by-laws and rules. Specifically, OCC proposes to 
exclude from such definition any person who is required to be treated 
as a customer under Commission Rule 15c3-3.\2\
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    \2\ 17 CFR 240.15c3-3.
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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.\3\
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    \3\ The Commission has modified parts of these statements.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The primary purpose of the proposed rule change is to exclude from 
the definition of market-maker in Article I of OCC's By-Laws any person 
that is required to be treated as a customer for purposes of Rule 15c3-
3 so that OCC may have a lien on all securities in a market-maker's 
account without causing clearing members to be in violation of Rule 
15c3-3. The proposed rule change also: (1) Clarifies that OCC's lien on 
assets in a customers' account may be enforced to satisfy only those 
clearing member obligations arising from the account and (2) eliminates 
outdated references in OCC's rules to specialists and specialists' 
accounts.
    Under Rule 15c3-3, fully paid or excess margin securities of 
customers must be maintained by broker dealers, including OCC clearing 
members, in a control location.\4\ The Commission staff has informally 
stated that securities that are held subject to a lien to secure 
obligations of the carrying broker are not deemed to be in a control 
location for purposes of Rule 15c3-3.\5\ Broker dealers, however, are 
excluded from the definition of customer in Rule 15c3-3(a)(1).\6\
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    \4\ Rule 15c3-3(a) defines fully paid excess margin securities. 
Rule 15c3-3(c) identifies various means by which broker dealers may 
hold securities that meet the control requirement.
    \5\ See, e.g., Michael P. Jamroz, The Customer Protection Rule, 
57 The Business Lawyer 1069, 1085 (May 2002).
    \6\ Rule 15c3-3(a)(1) defines customer as any person from whom 
or on whose behalf a broker or dealer has received or acquired or 
holds funds or securities for the account of that person. The term 
shall not include a broker or dealer, a municipal securities dealer, 
or a government securities broker, or government securities dealer. 
The term shall, however, include another broker or dealer to the 
extent that broker or dealer maintains an omnibus account for the 
account of customers of the broker or dealer in compliance with 
Regulation T (12 CFR 220.1 through 220.19).
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    Under Article VI, ``Clearance of Exchange Transactions,'' Section 
3, ``Maintenance of Accounts,'' of OCC's By-Laws, an OCC clearing 
member grants OCC a lien on all positions in a market-maker's account 
to secure the obligations of the clearing member with respect to that 
account (or to secure all obligations of the clearing member, if the 
market-maker is a proprietary market-maker). Therefore, a clearing 
member could not permit positions of a Rule 15c3-3 customer to be 
carried in a market-maker account without risk of violating Rule 15c3-
3. In order to avoid inadvertent violations of Rule 15c3-3, OCC is 
amending the definition of market-maker in its by-laws to exclude any 
person treated as a customer for purposes of Rule 15c3-3.
    This change is advisable because the definition of market-maker as 
amended in SR-OCC-2001-07 \7\ includes persons performing market-maker 
functions on futures exchanges or security futures markets that are 
primarily regulated as futures exchanges and only notice-registered as 
national securities exchanges. Such persons may not be brokers or 
dealers as defined in Section 3(a)(4) and (5) of the Act and therefore 
may not automatically be excluded from the Rule 15c3-3 definition of 
customer. The proposed rule change will allow positions of futures 
floor traders and other market-makers that are customers under Rule 
15c3-3 to be included in a securities customers' account under Article 
VI, Section 3(e) or if the positions are carried in a futures customer 
account of the books of the clearing member, in a segregated futures 
account under Article VI, Section 3(f). Under the futures regulatory 
scheme, positions of floor traders and other professionals that are not 
affiliated with the carrying futures commission merchant are ordinarily 
required to be carried in the segregated funds account.\8\
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    \7\ Securities Exchange Act Release No. 44727 (August 20, 2001), 
66 FR 45351 (order approving rules for clearance of security 
futures).
    \8\ See CFTC Reg. 1.3(k) (defining customer as a person other 
than an owner or holder of a proprietary account); CFTC Reg. 1.3(y) 
(defining proprietary account in a manner that excludes an account 
owned or held by an unaffiliated entity); CFTC Reg. 1.20 (requiring 
that customer funds be separately accounted for and segregated).
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    Article VI, Section 3 of OCC's By-Laws describes the various types 
of accounts that clearing members may carry at OCC. Each paragraph in 
Section 3 describes the extent of any lien that OCC may have on the 
assets in that particular account and with respect to all accounts 
except the customers' account, describes the scope of the obligations 
collateralized by those assets. Assets in proprietary accounts 
generally secure any obligation of the clearing member to OCC whereas 
assets in certain other account types secure only obligations arising 
from the particular account in which the assets are held. For example, 
Article VI, Section 3(f), states that OCC's lien on assets in a 
segregated futures account acts as security for all obligations of the 
clearing member with respect to such account.
    The proposed rule change brings Section 3(e) in conformity with the 
other paragraphs in Section 3 by clarifying that OCC's lien on a 
securities customers' account secures only the

[[Page 3920]]

obligations of the clearing member to OCC with respect to that account. 
This does not represent a substantive change because the same effect is 
achieved under OCC's Rule 1104(a), which requires that any proceeds 
from assets in the customers' account be returned to the clearing 
member or its representative to the extent that such proceeds exceed 
obligations arising from the customers' account.
    In SR-OCC-2001-07, OCC simplified its description of market-maker 
accounts by subsuming ``specialist'' and ``specialist's account'' 
within the definition of market-maker and market-maker's account, 
respectively, in Article I. OCC at that time also adopted conforming 
changes to eliminate the terms specialist and specialist's account 
where they appeared in Article VI, Section 3. The proposed amendments 
to Chapters IV, VI, and XII and to the definition of JBO Participant in 
Article I are further conforming changes that eliminate obsolete 
references to specialist and specialist's account where they appear 
elsewhere in OCC's rules.
    OCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act, as amended, and the rules and 
regulations thereunder because it promotes the prompt and accurate 
clearance and settlement of securities transactions, 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(i) of the Act \9\ and Rule 19b-4(f)(1) \10\ thereunder 
because it constitutes a stated policy, practice or interpretation with 
respect to the meaning, enforcement or administration of an existing 
rule. At any time within sixty days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(i).
    \10\ 17 CFR 240.19b-4(f)(1).
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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. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. SR-OCC-2002-25. This file number should be included on the 
subject line if e-mail is used. To help us process and review comments 
more efficiently, comments should be sent in hardcopy or by e-mail but 
not by both methods. 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 the File No. 
SR-OCC-2002-25 and should be submitted by February 18, 2003.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-1707 Filed 1-24-03; 8:45 am]
BILLING CODE 8010-01-P