[Federal Register Volume 70, Number 24 (Monday, February 7, 2005)]
[Notices]
[Pages 6486-6487]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-474]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51120; File No. SR-OCC-2004-19]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of a Proposed Rule Change Relating to Clearing Member 
Trade Assignment Processing

February 1, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ notice is hereby given that on November 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 proposed rule change would amend OCC's By-laws and Rules by 
adding new clearing member trade assignment (``CMTA'') processing 
requirements.

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 the text of the summaries 
prepared by OCC.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    Since OCC amended its CMTA rules in 2004,\3\ a group of clearing 
members, the options exchanges, and OCC has been collaborating to 
better define the rights and obligations of the clearing members that 
are parties to a CMTA arrangement in order to increase the regulatory 
and legal certainties with respect thereto. One focus of this working 
group has been to formulate new CMTA processing rules that would be 
applied to transactions that have been executed for institutional and 
other customers (``CMTA customers'') with prime brokerage arrangements 
with the carrying clearing member that serves as a CMTA customer's 
prime broker.
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    \3\ Securities Exchange Act Release No. 49841 (June 9, 2004); 69 
FR 34207 (June 18, 2004) [File No. SR-OCC-2003-11]. CMTA processing 
enables one clearing member (``carrying clearing member'') to 
authorize another clearing member (``executing clearing member'') to 
direct that exchange transactions be transferred to an account of 
the carrying clearing member for clearance and settlement.
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    Under the proposed rule change, OCC would modify Article I 
(``Definitions'') of its By-Laws and Rules 401 and 403 to require 
clearing members that are parties to a CMTA arrangement involving CMTA 
customers to register with OCC certain customer identifiers that the 
clearing members use to process the CMTA transactions. Specifically, 
the new rules would provide that an exchange transaction executed on 
behalf of a CMTA customer that is to be transferred by CMTA processing 
for clearance and settlement will be identified by a special indicator 
called a Customer CMTA Indicator in the matching trade information 
submitted with respect to that transaction.\4\ For each transaction 
marked with the Customer CMTA Indicator, the matching trade information 
would also contain identification information about the CMTA customer 
on whose behalf a transaction was executed (``CMTA Customer 
Identifier'') and the introducing broker that executed or arranged for 
the execution of such transaction (``IB Identifier'').\5\
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    \4\ The same indicator would be used by all options exchanges. 
OCC made various system changes to process this indicator and other 
information to be supplied with respect to CMTA customers' 
transactions. Matching trade information submitted by the options 
exchanges would need to include this information that requires 
changes to the exchanges' systems.
    \5\ If the introducing broker is also the executing clearing 
member, a separate IB Identifier would still be required.
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    If a transaction is marked with the CMTA Indicator, OCC's systems 
would verify against a database of registered identifiers that the CMTA 
Customer Identifier and the IB Identifier supplied as a part of the 
trade information match registered identifiers for purposes of the CMTA 
arrangement between the carrying and executing clearing members to the 
trade. This verification step would be in addition to the other 
verifications performed by OCC's systems for CMTA processing. If a 
transaction is marked with a Customer CMTA Indicator but either the 
CMTA Customer Identifier or the IB Identifier is incomplete, 
inaccurate, or missing,

[[Page 6487]]

OCC's systems would treat the transaction as a failed CMTA and would 
cause the transaction to be cleared in the executing clearing member's 
designated or default account in accordance with OCC Rule 403.
    Under the terms of a model agreement developed by the working group 
to reflect the rights and obligations of the carrying and executing 
clearing members with respect to their customer CMTA arrangement, the 
firms would identify each CMTA covered customer. Separately, the 
clearing members would assign identifiers to their CMTA customers and 
introducing brokers. One clearing member then would register the 
assigned identifiers with OCC. OCC's systems would require the other 
clearing member to approve the identifiers before they are submitted to 
OCC for registration. Identifiers would be effectively registered when 
they are accepted by OCC's systems, subject to OCC's right to reject an 
already registered identifier.\6\ OCC would retain the right to specify 
criteria applicable to the characters used to form identifiers for 
systemic reasons.
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    \6\ Carrying and executing clearing members would be responsible 
to update their respective registrations of CMTA Customer 
Identifiers and IB Identifiers including registering any changes or 
deletions with respect thereto.
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    The prime broker clearing members involved in developing these 
requirements believe that including identification information about 
the CMTA customer and introducing broker to a transaction would make 
CMTA processing more transparent. Since carrying clearing members do 
not have the ability to approve or reject a transaction before it is 
entered into the exchanges' systems for reporting to OCC, they believe 
having OCC verify customer and introducing broker information will 
assist in limiting the chances that a transaction erroneously will be 
transferred into one of their clearing accounts. They also believe 
having such information available on the trade record will improve the 
effectiveness of their back office efforts to confirm that transactions 
cleared in their accounts conform to the information supplied by their 
customer or its introducing broker, and thereby, will facilitate 
decision making on whether the position resulting from the transaction 
is eligible for return under their CMTA agreement and Rule 403.
    OCC believes that the proposed rule change is consistent with 
Section 17A of the Act \7\ because it fosters the prompt and accurate 
clearance and settlement of securities transactions, the safeguarding 
of funds and securities, and the protection of investors and the 
persons facilitating transactions by and acting on behalf of investors.
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    \7\ 15 U.S.C. 78q-1.
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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 theProposed 
Rule Change Received from Members, Participants or Others

    OCC did not solicit or receive written comments with respect to the 
proposed rule change.

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

    Within thirty-five days of the date of publication of this notice 
in the Federal Register or within such longer period (i) as the 
Commission may designate up to ninety days of such date if it finds 
such longer period to be appropriate and publishes its reasons for so 
finding or (ii) as to which the self-regulatory organization consents, 
the Commission will:
    (A) By order approve such proposed rule change or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2004-19 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-2004-19. 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 OCC's principal office and on 
OCC's Web site at http://www.optionsclearing. com/publications/rules/
proposed--changes/proposed--changes.jsp. 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-2004-19 and should be submitted on 
or before February 28, 2005.

    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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-474 Filed 2-4-05; 8:45 am]
BILLING CODE 8010-01-P