[Federal Register Volume 68, Number 80 (Friday, April 25, 2003)]
[Notices]
[Pages 20417-20418]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-10260]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47707; File No. SR-OCC-2002-04]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change, as Amended, Relating to Money Market Funds as Margin 
Collateral

April 21, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on January 29, 2002, the 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') proposed rule change SR-OCC-2002-
04. Notice of the proposal was published in the Federal Register on 
January 16, 2003.\2\ No comment letters were received. The Commission 
granted approval of the proposed rule change on March 31, 2003.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 47146 (January 9, 2003), 
68 FR 2385.
    \3\ Securities Exchange Act Release No. 47599, 68 FR 16849 
(April 7, 2003).
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    OCC filed Amendment I to the proposed rule change on November 19, 
2002. The changes made by Amendment I were inadvertently omitted from 
the notice and order approving the proposed rule change. Accordingly, 
the Commission is publishing this notice to solicit comments on 
Amendment I from interested persons.

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

    Amendment I modified SR-OCC-2002-04 which expanded the acceptable 
forms of margin collateral to include shares of money market funds 
meeting specified criteria.

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.\4\
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    \4\ 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

    OCC filed Amendment I after discussions with its clearing members 
and fund issuers caused OCC to identify several areas in which SR-OCC-
2002-04 needed to be clarified or modified. Amendment I made the 
following changes to SR-OCC-2002-04:
    [sbull] Notification of Noncompliance with Requirements. SR-OCC-
2002-04 as originally filed required a fund to immediately notify OCC 
of any noncompliance with the requirements of rule 604(b)(3)(i). 
Amendment I amended the filing to provide additional details as to 
when, to whom, and how such notice should be given. This additional 
detail will help ensure that OCC receives appropriate and timely notice 
of noncompliance in order to take such action as it deems necessary to 
respond to the event causing the noncompliance.
    [sbull] Valuation of Deposited Shares. SR-OCC-2002-04 as originally 
filed provided that money market fund shares would be valued at 98% of 
current net asset value unless a lower valuation was prescribed by 
OCC's Membership/Margin Committee. While the funds that will qualify 
for deposit under rule 604 are designed to maintain a stable net asset 
value of $1.00, net asset value at any point in time may be slightly 
greater or less than $1.00. Accordingly, OCC filed Amendment I to 
provide that deposited shares would be valued at 98% of current market 
value. In addition, Amendment I provided that OCC may prescribe a lower 
valuation in the event OCC receives notice from a fund that it no 
longer meets the qualification standards applicable to accept the 
fund's shares.
    [sbull] Concentration Requirements. SR-OCC-2002-04 as originally 
filed required that no single registered shareholder have an interest 
of 10% or more in a fund. This standard was intended to limit the 
possibility that a redemption decision by a single shareholder could 
adversely affect the fund's ability to redeem shares in an orderly 
manner. Fund sponsors have advised OCC that this requirement may 
severely restrict their ability to construct a fund tailored to meet 
OCC's qualification standards as it requires a minimum of at least 10 
registered shareholders before the fund meets OCC's eligibility 
standards. As a result, in Amendment I OCC revised its concentration 
restriction to provide that no more than 5% of the total number of 
outstanding shares of any one fund may be deposited by a single 
clearing member with OCC. OCC believes that this standard reasonably 
addresses concentration concerns because it limits OCC's exposure to a 
single fund on the default of the depositing clearing member.
    [sbull] Compliance with CFTC Regulation 1.25. SR-OCC-2002-04 as 
originally filed required a fund to comply with CFTC Regulation 1.25, 
which sets forth the terms and conditions applicable to a futures 
commission merchant's or a derivatives clearing organization's 
investment of futures customer funds in permitted instruments. CFTC 
Regulation 1.25(c) specifies requirements for investments in money 
market mutual funds. This requirement was intended to ensure that 
shares in all approved funds could be deposited by clearing members 
registered as FCMs in their segregated futures account at OCC to the 
extent such shares were acquired with futures customer funds. CFTC 
Regulation 1.25(c), however, would not apply to money market fund 
shares deposited as margin for OCC accounts other than for segregated 
futures

[[Page 20418]]

accounts, and OCC decided not to require fund compliance with CFTC 
Regulation 1.25. However, as a reminder to clearing members, Amendment 
I modified rule 604(b)(3)(v) to provide that the deposit of money 
market fund shares with respect to a segregated futures account 
constitutes a clearing member's representation that the fund meets the 
requirements of CFTC Regulation 1.25.
    [sbull] Redemption. SR-OCC-2002-04 as originally filed required a 
fund to waive any right it may otherwise have to postpone the payment 
of redemption proceeds and the right to redeem shares in kind and to 
agree to redeem shares in cash not later than the business day 
following a redemption request by OCC except when redemptions could not 
be effected due to unscheduled closings of the Federal Reserve Banks or 
the New York Stock Exchange or other specified emergency condition. OCC 
has concluded that the phrase other specified emergency condition is 
unclear and has determined to delete it. OCC believes that, as amended, 
this clause of the rule will be more consistent with OCC's original 
intentions with respect to permitted exceptions to redemption requests.
    As well as the above changes, Amendment I makes a minor 
modification to rule 604 in order to distinguish money market funds 
from fund shares as proposed in File No. SR-OCC-2002-22.\5\
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    \5\ Securities Exchange Act Release No. 46914 (November 26, 
2002), 67 FR 72261 (December 4, 2002).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    OCC does not believe that Amendment I would have an impact on or 
impose a burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received from Members, Participants, or Others

    No written comments relating to Amendment I have been solicited or 
received. OCC will notify the Commission of any written comments 
received by OCC.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Commission finds that Amendment I is consistent with the 
requirements of the Act and the rules and regulations thereunder and 
particularly with the requirements of section 17A(b)(3)(F).\6\ Section 
17A(b)(3)(F) 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 has already determined that the proposed 
rule change in SR-OCC-2002-04 meets the requirements in section 
17A(b)(3)(F). Accordingly, the Commission finds that the changes made 
to SR-OCC-2002-04 by Amendment I have been designed so that they also 
should enable OCC to ensure that it is able to safeguard the securities 
and funds that are within its custody or control or for which it is 
responsible.
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    \6\ 15 U.S.C. 78q-1(b)(3)(I).
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    The Commission finds good cause for approving SR-OCC-2002-04, as 
amended by Amendment I, prior to the thirtieth day after publication of 
notice because by so approving, OCC will be able to implement SR-OCC-
2002-04, which was previously approved by the Commission, with the 
changes made by Amendment I.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment I 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-2002-04. 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-2002-04 and should 
be submitted by May 16, 2003.

V. 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 with the requirements of section 17A of the Act and the 
rules and regulations thereunder applicable.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change as amended (File No. SR-OCC-2002-04) be, 
and hereby is, approved. 

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-10260 Filed 4-24-03; 8:45 am]
BILLING CODE 8010-01-P