[Federal Register Volume 69, Number 3 (Tuesday, January 6, 2004)]
[Notices]
[Pages 632-633]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-189]


=======================================================================
-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION


In the Matter of Intermarket Clearing Corporation--Request for 
Vacation From Designation as Derivatives Clearing Organization

AGENCY: Commodity Futures Trading Commission.

ACTION: Order.

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

SUMMARY: In response to a request by the Intermarket Clearing 
Corporation (``ICC''), the Commodity Futures Trading Commission 
(``Commission'' or ``CFTC'') is issuing an order vacating ICC's 
designation as a Derivatives Clearing Organization (``DCO'').

EFFECTIVE DATE: December 31, 2003.

FOR FURTHER INFORMATION CONTACT: R. Trabue Bland, Attorney, Division of 
Clearing and Intermediary Oversight, Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581. Telephone: (202) 418-5430. E-mail: [email protected].

SUPPLEMENTARY INFORMATION:

I. Statutory Background

    Section 5b(d) of the Commodity Exchange Act \1\ (``Act'') provides 
that DCOs that clear contracts for boards of trade designated by the 
Commission as contract markets prior to a certain date are deemed 
registered with the Commission. Under Section 1a(29)(C) of the Act, 
registered DCOs are ``registered entities.'' Section 7 of the Act \2\ 
provides that ``any person that has been designated or registered as a 
registered entity in the manner herein provided may have such 
designation or registration vacated and set aside by giving notice to 
the Commission requesting that its designation or registration as a 
registered entity be vacated, which notice shall be served at least 
ninety days prior to the date named therein as the date when vacation 
of designation or registration shall take effect.'' ICC has requested 
that the vacation of this registration take place before the expiration 
of the ninety-day period. In response to the request, the Commission is 
exempting ICC from the notice requirements of Section 7 of the Act 
pursuant to Section 4(c) of the Act,\3\ which gives the Commission 
broad exemptive authority, and then vacating ICC's registration.
---------------------------------------------------------------------------

    \1\ 7 U.S.C. 7a-1(2003).
    \2\ 7 U.S.C. 11 (2003).
    \3\ 7 U.S.C. 6c (2003).
---------------------------------------------------------------------------

II. Request for Vacation of Registration

A. Background

    By letter to the Division of Clearing Intermediary Oversight, the 
ICC submitted a request for the vacation of registration.\4\ The ICC is 
a registered DCO under Section 5b(d) of the Act and thus a registered 
entity as defined in Section 1a(29)(C) of the Act. The ICC is a wholly 
owned subsidiary of The Options Clearing Corporation (``OCC''), another 
registered DCO. For the past several years, ICC has not engaged in any 
clearing activities, and thus the OCC wishes to merge the ICC into the 
OCC. At the completion of the merger, ICC will cease to exist as a 
corporate entity. Therefore, the ICC requests that the Commission 
vacate the registration of ICC as a DCO.
---------------------------------------------------------------------------

    \4\ The letter, dated November 17, 2003, was sent to John 
Lawton, Deputy Director and Chief Counsel of the Division of 
Clearing and Intermediary Oversight.
---------------------------------------------------------------------------

    Section 7 of the Act allows ``any person that has been designated 
or registered as a registered entity in the manner herein provided may 
have such designation or registration vacated and set aside by giving 
notice to the Commission requesting that its designation or 
registration as a registered entity be vacated, which notice shall be 
served at least ninety days prior to the date named therein as the date 
when vacation of designation or registration shall take effect.'' ICC 
served notice to the Commission on November 17, 2003. However, the 
merger of ICC and OCC will take place before the end of the calendar 
year 2003, which will occur before the expiration of the ninety-day 
notice period required by Section 7 of the Act. Therefore, ICC 
requests, pursuant to Section 4(c) of the Act, that the Commission 
exempt ICC from Section 7's ninety-day notice requirement. On December 
18, 2003, the Commission published a proposed order and invited comment 
on ICC's request. \5\ The Commission received no comments.
---------------------------------------------------------------------------

    \5\ 68 FR 79494 (December 18, 2003).
---------------------------------------------------------------------------

B. Public Interest Considerations

    The Commission is waiving the Section 7 ninety-day notice 
requirement pursuant to section 4(c) of the Act, which grants the 
Commission broad exemptive authority. Section 4(c) of the Act provides 
that, in order to promote responsible economic or financial innovation 
and fair competition, the Commission ``may, by rule, regulation or 
order, exempt any class of agreements, contracts or transactions, 
including any person or class of persons offering, entering into, 
rendering advice or rendering other services with respect to, the 
agreement, contract, or transaction, from the contract market 
designation requirement of Section 4(a) of the Act, or any other 
provision of the Act * * * if the Commission determines that the 
exemption would be consistent with the public interest.'' \6\
---------------------------------------------------------------------------

    \6\ See, e.g., 65 FR 77993 (December 13, 2000) (adopting final 
rules pursuant to the 4(c) exemption).
---------------------------------------------------------------------------

    As explained above, the ICC has not operated as a clearing entity 
in a number of years. The merger of ICC into OCC will allow the OCC to 
streamline its operations. The Commission believes that exempting ICC 
from the ninety-day requirement of section 7 is consistent with the 
public interest, is consistent with the purposes of the Act and would 
have no adverse effect on the ability of OCC to fulfill its self-
regulatory responsibilities imposed by the Act.
    The Commission invited comments specifically on exempting ICC from 
the ninety-day requirement of section 7 and received no comments.

III. Conclusion

    After consideration of the ICC request, the Commission has 
determined to exempt ICC from the ninety-day notice requirement of 
section 7 of the Act. Furthermore, the Commission is vacating the 
Intermarket Clearing Corporation's registration as a derivatives 
clearing organization upon completion of the merger between ICC and 
OCC.

IV. Cost-Benefit Analysis

    Section 15(a) of the Act requires the Commission to consider the 
costs and benefits of its action before issuing a new regulation or 
order under the Act. By its terms, section 15(a) does not require the 
Commission to quantify the costs and benefits of a new order or to 
determine whether the benefits of the order outweigh its costs. Rather, 
section 15(a) simply requires the Commission to ``consider the costs 
and benefits'' of its action.''

[[Page 633]]

    Section 15(a) further specifies that costs and benefits shall be 
evaluated in light of five broad areas of market and public concern: 
Protection of market participants and the public; efficiency, 
competitiveness, and financial integrity of futures markets; price 
discovery; sound risk management practices; and other public interest 
considerations. Accordingly, the Commission could in its discretion 
give greater weight to any one of the five enumerated areas and could 
in its discretion determine that, not withstanding its costs, a 
particular rule was necessary or appropriate to protect the public 
interest or to effectuate any of the provisions or to accomplish any of 
the purposes of the Act.
    The order is intended to vacate the registration of the ICC, in 
order to allow the Options Clearing Corporation to merge with the ICC. 
The Commission has considered the costs and benefits of the order in 
light of the specific provisions of Section 15(a) of the Act.
    1. Protection of market participants and the public.
    The ICC does not provide any clearing services to any designated 
contract markets. Accordingly, the order should have no effect on the 
Commission's ability to protect market participants and the public.
    2. Efficiency and competition.
    The order is not expected to have an effect on efficiency or 
competition.
    3. Financial integrity of futures markets and price discovery.
    The order should have no effect, from the standpoint of imposing 
costs or creating benefits, on the financial integrity or price 
discovery function of the commodity futures and options markets.
    4. Sound risk management practices.
    The order should have no effect on sound risk management practices.
    5. Other public interest considerations.
    The order will have the positive effect of allowing the OCC to 
streamline its operations.

V. Order

    Upon due consideration, and pursuant to its authority under Section 
7 of the Act to vacate the designation of a registered entity and 
pursuant to its authority under Section 4(c) of the Act to exempt ICC 
from the requirement that notice be served at least 90 days prior to 
vacation, the Commission finds that:
    (1) The Intermarket Clearing Corporation (``ICC'') is currently 
registered with the Commission as a derivatives clearing organization 
(``DCO'') under section 5b(d) of the Commodity Exchange Act (the 
``Act'');
    (2) ICC has not engaged in activity as a DCO for several years;
    (3) ICC proposes to merge into The Options Clearing Corporation, 
which is also registered as a DCO;
    (4) Upon the effectiveness of that merger, ICC will cease to exist 
as a corporate entity;
    (5) ICC has requested that the Commission terminate ICC's 
registration as a DCO upon the effectiveness of that merger;
    (6) The merger of ICC and OCC will take place before the expiration 
of the ninety-day notice requirement of section 7 of the Act; and
    (7) Exempting ICC from the ninety-day notice requirement of section 
7 of the Act will have no adverse effect on any of the regulatory or 
self-regulatory responsibilities imposed by the Act and will be 
consistent with the public interest.
    Therefore, the Commission hereby orders that ICC's designations as 
a DCO be and hereby is vacated upon the effectiveness of ICC's merger 
into the Options Clearing Corporation.

    Issued in Washington, DC, on December 30, 2003, by the 
Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 04-189 Filed 1-5-04; 8:45 am]
BILLING CODE 6351-01-M