[Federal Register Volume 70, Number 58 (Monday, March 28, 2005)]
[Notices]
[Pages 15671-15672]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1336]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51390; File No. SR-OCC-2005-02]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to the Establishment of a Money-Only Settlement Service

March 17, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 2, 2005, 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 establishes a money-only settlement 
service for OCC clearing members.

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

    Clearing members have asked OCC to provide a facility that effects 
transfers of daily money differences and claims between clearing 
members.\3\ These money differences may result from such things as, 
among other things, transfers of accounts and commission billing for 
trade execution. Clearing members presently settle these differences 
through invoices and checks sent through the U.S. mail or by messenger 
deliveries. However, clearing members have advised OCC that items sent 
by either of these means are frequently lost, misdelivered, or delayed 
and ultimately are written off as uncollectible.
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    \3\ In making their request, clearing members advised OCC that 
other securities clearing agencies, including The Depository Trust 
Company (``DTC'') and National Securities Clearing Corporation 
(``NSCC''), offer a comparable service to their participants. See 
DTC Rule 9(A), Transactions in Securities and Money Payments and 
NSCC Rule 41, Funds Only Settlement Service.
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    In response to these requests, OCC has determined to add a money-
only settlement service that would be available for clearing member use 
through OCC's ENCORE system. This service, which will only be available 
for money differences arising from transactions cleared by OCC, will be 
governed by proposed new Rule 504.\4\ Clearing members desiring to 
settle an open money item with another clearing member will initiate an 
instruction on any business day through the ENCORE system. OCC will 
specify a time by which instructions will have to be approved. If the 
clearing member receiving the instruction does not approve it by the 
deadline, the instruction will be deemed null and void and will be 
deleted from the system. If the instruction is approved,\5\ OCC, as 
agent, would draft a paying clearing member's designated bank account 
at a time to be specified by OCC. OCC will similarly specify a time by 
which OCC, as agent, will pay to the collecting clearing member the 
amount specified in the instruction. Initially, OCC intends to effect 
money-only settlement on the business day after an instruction is 
approved. In the future, however, OCC may effect money-only settlement 
on the same business day that an instruction is approved. OCC will 
notify its clearing members before implementing a change with respect 
to settlement times.
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    \4\ Proposed Rule 504 is based on Rule 503 pursuant to which 
OCC, as agent, effects premium settlements between banks or 
depositories and clearing members with respect to their escrow 
depository receipt activity under Rule 613.
    \5\ Approval of an instruction by a clearing member will be 
detailed in an audit trail created and maintained by OCC.
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    OCC will withhold money-only settlement amounts owed to any 
clearing member if the clearing member has any unsatisfied payment 
obligation to OCC. Any amounts withheld will be used to reduce the 
unpaid obligation.
    In drafting a paying clearing member's bank account or in making 
payment to a collecting clearing member in connection with money-only 
settlement transactions, OCC may combine multiple transactions for 
which the clearing member is obligated to make payment or is entitled 
to receive payments. However, OCC will neither net money-only 
settlement amounts payable by a clearing member with any amounts 
payable to the clearing member by OCC with respect to any account 
maintained by the clearing member with OCC nor will OCC net money-only 
settlement amounts payable to a clearing member with amounts payable by 
the clearing member to OCC. Money-only settlement amounts will appear 
as a separate line item on a settlement report made available to 
clearing members on each business day.\6\
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    \6\ This report is made available to Clearing Members via OCC's 
on-line report inquiry service.
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    The money differences to be processed through the money-only 
settlement system are between clearing members, and OCC will 
accordingly only act as agent for each clearing member in facilitating 
their settlement. OCC will not guarantee money-only settlements and 
will not be obligated to make a money-only settlement payment unless it 
has collected the amount of the payment from the paying clearing 
member. If a clearing member is suspended by OCC pursuant to Chapter XI 
of the Rules, any pending instructions of such clearing member will be 
deemed null and void to the extent that the suspended clearing member 
is a paying clearing member.\7\ OCC does not believe that the money-
only settlement service will adversely affect its capacity to settle 
transactions in cleared securities because its cash settlement system 
has more than sufficient capacity to handle the anticipated daily 
volume of money-only settlements.
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    \7\ OCC's determination not to guarantee money-only settlement 
items is consistent with NSCC Rule 41, Section 10.
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    OCC believes that the proposed rule change is consistent with 
Section 17A of the Act because money-only settlement service will 
provide a more efficient means for clearing members to settle money 
differences relating to transactions or positions in cleared contracts, 
thereby improving the likelihood that these amounts will be collected 
by clearing members. The proposed rule change is not inconsistent with 
the existing rules of OCC,

[[Page 15672]]

including any other rules proposed to be amended.

(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 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 have 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 \8\ and Rule 19b-4(f)(6) \9\ thereunder 
because it effects a change that (i) does not significantly affect the 
protection of investors or the public interest, (ii) does not impose 
any significant burden on competition, and (iii) by its terms, does not 
become operative for 30 days after the filing. At any time within 60 
days of the filing of the proposed rule change, the Commission may 
summarily abrogate the 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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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(6).
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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-2005-02 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-2005-02. 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-2005-02 and should be 
submitted on or before April 18, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1336 Filed 3-25-05; 8:45 am]
BILLING CODE 8010-01-P