[Federal Register Volume 69, Number 159 (Friday, October 8, 2004)]
[Notices]
[Pages 60449-60450]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2534]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50465; File No. SR-OCC-2003-09]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Granting Approval of a Proposed Rule Change and Notice of Filing 
and Order Granting Accelerated Approval of Amendment No. 1 Relating to 
Minimum Net Capital Requirements for Appointed Clearing Members

September 29, 2004.

I. Introduction

    On August 22, 2003, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') 
proposed rule change SR-OCC-2003-09 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal 
was published in the Federal Register on April 1, 2004.\2\ No comment 
letters were received. On September 28, 2004, OCC filed Amendment No. 1 
to the proposed rule change. For the reasons discussed below, the 
Commission is granting approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 49478, (March 25, 2004), 
69 FR 17258.
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II. Description

    The proposed rule change specifies minimum net capital requirements 
for Appointed Clearing Members, which are OCC clearing members that 
facilitate stock settlement for other clearing members. OCC's by-laws 
define an ``underlying security'' with respect to physically settled 
stock options and stock futures to mean the security or other asset 
that OCC is obligated to sell or purchase upon exercise or maturity of 
the contract. Normally, underlying securities are delivered and paid 
for through the facilities of the National Securities Clearing 
Corporation (``NSCC''), and clearing members that are eligible to clear 
and carry stock options and stock futures contracts must be NSCC 
participants except as otherwise provided in OCC's rules. OCC's by-laws 
and rules permit a clearing member (``Appointing Clearing Member'') 
that is not an NSCC member to appoint another clearing member 
(``Appointed Clearing Member'') that is an NSCC member to deliver and 
to receive underlying securities and to effect payment on their behalf 
through the facilities of NSCC.
    In connection with providing stock settlement services, an 
Appointed Clearing Member may be subject to increased risk. As a 
result, OCC has determined that Appointed Clearing Members should be 
required to maintain a specified minimum amount of net capital in order 
to perform such services. Therefore, OCC is implementing new Rule 309A 
that will apply to Appointed Clearing Members the minimum net capital 
standards that currently are applied to Managing Clearing Members in 
facilities management arrangements in Rule 309. This minimum net 
capital standard will require every Appointed Clearing Member to 
maintain net capital of not less than the greater of (i) the minimum 
net capital required under the provisions of OCC Rule 302 or (ii) the 
sum of (A) $4,000,000 plus (B) $200,000 times the number of Appointing 
Clearing Members in excess of four on whose behalf the Appointed 
Clearing Member effects settlements.\3\
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    \3\ As originally filed the dollar amounts in (A) and (B) were 
$2,000,000 and $100,000. This was the subject of the amendment filed 
on September 28, 2004.
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III. Discussion

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a clearing agency be designed to assure the safeguarding 
of securities and funds which are in its custody or control or for 
which it is responsible.\4\ The Commission agrees with OCC that 
Appointed Clearing Members take on additional financial risk when they 
provide settlement services for Appointing Clearing Members. By 
increasing the minimum net capital requirement for Appointed Clearing 
Members, the proposed rule change is designed to provide OCC with 
additional assurances of Appointed Clearing Members' financial 
responsibility which should help OCC to better protect itself and its 
members from any additional risk posed by Appointed Clearing Members. 
Accordingly, the proposed rule change is designed to assure the 
safeguarding of securities and funds which are in OCC's custody or 
control or for which it is responsible.
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
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    OCC has requested that the Commission approve this proposed rule 
change prior to the thirtieth day after publication of notice of the 
filing. Because OCC's amendment (1) changed only the dollar amount of 
required capital and not the substance of the proposed rule change, (2) 
followed up on what OCC had stated it was going to do in its filing 
increasing the net capital requirement for Managing Clearing 
Members,\5\ (3) made the calculation of the net capital requirements 
for Appointed Clearing Members and Managing Clearing Members 
consistent, and (4) will help OCC to protect itself and its members 
from any additional risk posed by Appointing Clearing Members, the 
Commission finds good cause for approving the proposed rule change 
prior to the thirtieth day after publication of notice.
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    \5\ Securities Exchange Act Release No. 49843 (June 9, 2004), 69 
FR 13744 (June 18, 2004) [File No. SR-OCC-2003-11].
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
is consistent with the Act. Comments may be submitted by any of the 
following methods:

[[Page 60450]]

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-2004-11 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 http://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 October 29, 2004.

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 Section 17A of the Act and the rules and regulations 
thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-OCC-2003-09) be and hereby 
is approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-2534 Filed 10-7-04; 8:45 am]
BILLING CODE 8010-01-P