[Federal Register Volume 69, Number 150 (Thursday, August 5, 2004)]
[Notices]
[Pages 47476-47477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-17849]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50120; File No. SR-OCC-2004-09]


Self-Regulatory Organizations; the Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Eligible Securities for OCC's Stock/Loan Hedge Program

July 29, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on June 1, 2004, 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 purpose of the proposed rule change is to amend the eligibility 
requirements for securities that may be the subject of stock loan/
borrow transactions cleared through OCC's Stock Loan/Hedge Program 
(``Hedge Program'').

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

    In 2002 OCC proposed an additional eligibility criterion for equity 
securities that may be loaned in the Hedge Program. Specifically, OCC 
proposed that a loaned security be an underlying security for options 
unless (1) the loan was accepted by OCC prior to the implementation of 
the new requirement or (2) the security was deliverable upon the 
exercise of an outstanding option.\3\ OCC's intention in adding this 
requirement was to more closely align the Hedge Program with its 
intended objective of recognizing intermarket hedges between a clearing 
member's equity and options positions.
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    \3\ The existing criteria required that a security loaned in the 
Hedge Program be an equity security eligible for deposit at DTC and 
that OCC had not terminated all loans with respect to that security. 
These requirements are still in effect.
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    OCC, with the Commission's consent, deferred implementing this new 
standard pending completion of system enhancements by DTC and Loanet 
which would permit DTC and Loanet to confirm that the securities loaned 
in a transaction meet OCC's criteria in order to confirm that the 
transaction was eligible for clearance at OCC.\4\ These system 
enhancements have been scheduled for implementation in June 2004.
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    \4\ Loanet is a service bureau used by broker dealers, including 
OCC clearing members, involved in stock loan transactions. Clearing 
members, either on their own or through Loanet, enter into stock 
loan transactions via DTC systems and through use of a special code 
designate the stock loan transactions as eligible for clearance at 
OCC.
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    During the deferment period, OCC took the opportunity to reassess 
its eligibility criteria as approved by the Commission, and OCC 
determined that the criteria would preclude the lending of shares of 
certain exchange-traded funds (``ETFs''). There are a number of ETFs 
that track indexes underlying OCC-issued options but that are not 
themselves underlying securities for options. These ETFs are often used 
as hedges against the related index options. Without a change in the 
eligibility criteria, OCC would have to disqualify such ETFs from being 
loaned in the Hedge Program. OCC believes that excluding such ETFs 
would be inconsistent with the purpose of the Hedge Program, which is 
to give recognition to intermarket hedges between equity and options 
positions.\5\ Accordingly, OCC is making this technical change to its 
securities eligibility criteria to permit loans of an ETF that tracks 
an index underlying an outstanding index option whether or not the ETF 
itself is an underlying security for options.
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    \5\ Five such ETFs account for nearly $673 million in loans 
outstanding in the Hedge Program as of May 2004.
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    OCC believes that the proposed changes to its rules are consistent 
with the purpose and requirements of Section 17A of the Securities and 
Exchange Act of 1934, because it is designed to promote the prompt and 
accurate clearance and settlement of securities transactions, foster 
cooperation and coordination with persons engaged in the clearance and 
settlement of securities transactions, remove impediments to the 
mechanisms of a national system for the prompt and accurate clearance 
and settlement of securities transactions, and assure the safeguarding 
of securities and funds in the custody or control of OCC.

(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.

[[Page 47477]]

(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 has 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)(iii) of the Act \6\ and Rule 19b-4(f)(4) \7\ promulgated 
thereunder because the proposal effects a change in an existing service 
of OCC that (A) does not adversely affect the safeguarding of 
securities or funds in the custody or control of OCC or for which it is 
responsible and (B) does not significantly affect the respective rights 
or obligations of OCC or persons using the service. 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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    \6\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \7\ 17 CFR 240.19b-4(f)(4).
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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. Comments may be submitted by any of 
the following methods:
    Electronic comments:
     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml) or
     Send an e-mail to [email protected]. Please include 
File Number SR-OCC-2004-09 on the subject line.
    Paper comments:
     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-OCC-2004-09. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 also will be 
available for inspection and copying at the principal office of OCC and 
on OCC's Web site at www.optionsclearing.com. All comments received 
will be posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-OCC-2004-09 and should be submitted on 
or before August 26, 2004.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-17849 Filed 8-4-04; 8:45 am]
BILLING CODE 8010-01-P