[Federal Register Volume 68, Number 17 (Monday, January 27, 2003)]
[Notices]
[Pages 3920-3922]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-1708]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47198; File No. SR-OCC-2002-24]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Clarifying Regulatory Registration Requirements for OCC 
Membership

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 8, 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 clarifies and restates OCC's by-laws 
relating to regulatory registration requirements for OCC membership.

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.\2\
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    \2\ 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 purpose of the proposed rule change is to restate and clarify 
applicable regulatory registration requirements in OCC's by-laws. To 
ensure that OCC clearing members are subject to appropriate regulatory 
authority standards and financial reporting requirements, OCC requires 
that each clearing member be either fully registered as a broker dealer 
under

[[Page 3921]]

section 15(b)(1) or (2) of the Act or fully registered as a futures 
commission merchant (``FCM'') under section 4f(a)(1) of the Commodity 
Exchange Act (``CEA'').\3\ A limited exception exists for a ``non-U.S. 
securities firm'' as defined in Article I of OCC's by-laws, which 
requires appropriate supervision by a non-U.S. regulatory body.\4\ OCC 
also requires clearing members to satisfy any additional registration 
requirements that may be applicable to the clearing member under the 
Act or the CEA as a result of the particular clearing activity 
conducted by the clearing member.
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    \3\ 7 U.S.C. 1 et seq.
    \4\ Article I, Definitions, of OCC's by-laws defines ``non-U.S. 
securities firms'' as a securities firm (1) formed and operating 
under the laws of a country other than the U.S., (2) with its 
principal place of business in that country, (3) that is subject to 
regulation in that country, and (4) that is not registered or 
required to be registered as a broker dealer. The proposed rule 
change adds the requirement that the firm not be registered or 
required to be registered as an FCM.
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    As currently drafted, Article V, Section 1, Interpretation and 
Policy .08 (``Interpretation''), which was adopted as part of OCC's 
rule filing permitting it to clear commodity futures,\5\ states that in 
order to clear options other than futures options a clearing member 
must be a fully registered broker dealer. Thus, the Interpretation 
would appear to require a non-U.S. securities firm that would not 
otherwise be required to register as a broker dealer to so register in 
order to clear securities options. This was not intended and is 
inconsistent with Article V, Section 1, which provides that a non-U.S. 
securities firm may become a clearing member. The very purpose of 
permitting non-U.S. securities firms, which by definition are not 
registered as broker dealers, to become clearing members was to allow 
them to clear securities options. Applying the Interpretation as 
written would frustrate that purpose.
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    \5\ Securities Exchange Act Release No. 45946 (May 16, 2002), 67 
FR 36056 (May 22, 2002) [OCC-2001-16].
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    As currently drafted, the Interpretation also states that in order 
to clear commodity futures and futures options, a clearing member must 
be a fully registered FCM, and in order to clear security futures 
products, a fully registered broker dealer must also be a fully 
registered FCM or notice-registered as an FCM under section 4f(a)(2) of 
the CEA. However, the CEA and the CFTC's regulations do not require a 
person engaged only in proprietary trading and clearing to register as 
an FCM, whether clearing conventional securities products or security 
futures products.\6\ OCC did not intend to require FCM registration 
where such registration is not mandated by the CEA or the CFTC's 
regulations. The restated Interpretation would eliminate any contrary 
implication.
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    \6\ Section 4d of the CEA makes it unlawful for any person to 
act as an FCM in soliciting or accepting orders for the purchase or 
sale of any commodity for future delivery, or involving any 
contracts of sale of any commodity for future delivery, on or 
subject to the rules of any contract market unless such person is 
registered with the CFTC as an FCM. In order to fall within the 
definition of an FCM in section 1a(20) of the CEA, a person must, in 
connection with the soliciting or accepting of orders for the 
purchase or sale of a futures contract on a contract market or 
derivatives transaction execution facility, accept money, 
securities, or property (or extend credit in lieu thereof) to 
margin, guarantee, or secure any trades or contracts that result or 
may result. A firm trading exclusively for its own account would not 
meet that definition. Moreover, CTFC Regulation 3.10(c) provides 
that a person trading solely for proprietary accounts, as defined in 
Regulation 1.3(y), is not required to register as an FCM. 17 CFR 
3.10(c).
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    Finally, as currently drafted, the Interpretation fails to account 
for the possibility that a non-U.S. securities firm might lawfully 
clear securities futures products for its own account without 
registration under either the Act or the CEA. The restated 
Interpretation makes clear that a firm qualifying as a non-U.S. 
securities firm under OCC's rules can clear any product through OCC 
without registration under U.S. laws so long as it would not be in 
violation of those laws in regulations in so doing.
    OCC believes the proposed rule change is consistent with Section 
17A of the Act because by specifically identifying the regulatory 
restrictions required for clearing members engaged in clearing 
particular products, 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 \7\ and Rule 19b-4(f)(1)\8\ 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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    \7\ 15 U.S.C. 78s(b)(3)(A)(i).
    \8\ 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-2002-24. 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-2002-24 and should be submitted by February 18, 2003.


[[Page 3922]]


    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-1708 Filed 1-24-03; 8:45 am]
BILLING CODE 8010-01-P