[Federal Register Volume 70, Number 64 (Tuesday, April 5, 2005)]
[Notices]
[Pages 17281-17282]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1514]



[[Page 17281]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51445; File No. SR-OCC-2005-03]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Establish an Electronic Pledge System Through Which Clearing Members 
May Deposit Securities With Banks Acting as Agents for OCC To Meet 
Margin and Clearing Fund Requirements

March 29, 2005.

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 22, 2005, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change 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 parties.
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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 an electronic pledge system 
through which clearing members of OCC may deposit securities with banks 
acting as agents for OCC to meet minimum margin and clearing fund 
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 these 
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

Electronic Pledge System
    Currently, clearing members that wish to make margin and clearing 
fund deposits electronically may do so only by using a system operated 
by The Depository Trust Company (``DTC''). Clearing members that wish 
to make deposits through a bank must use paper depository receipts 
through which they pledge securities to OCC. The paper depository 
receipts must be signed by the clearing member and the bank and faxed 
to OCC. Hard copies of the executed receipts also must be mailed to 
OCC. When OCC releases a margin deposit made through a bank, a 
representative of OCC must sign the paper depository receipt and fax it 
to the bank where the securities were deposited.
    ENCORE, OCC's clearing system, has been modified to allow banks to 
confirm a clearing member's pledge of government securities and debt 
securities issued by congressionally-chartered corporations (``GSE debt 
securities'') and to process approved releases through a Web-based 
application. OCC anticipates the use of the electronic pledge system 
will significantly reduce paperwork and reduce costs for banks, 
clearing members, and OCC.
Other Proposed Revisions
    OCC is also making other changes to its rules relating to margin 
deposits. First, OCC is updating Rule 604, which governs forms of 
margin, to conform the Rule to OCC's practice of valuing all U.S. and 
foreign government securities and GSE debt securities on a daily basis. 
The Rule currently provides that foreign government securities are 
valued no less frequently than daily but that U.S. government 
securities and GSE debt securities are valued no less frequently than 
monthly.
    The second revision is the deletion of references in OCC's rules to 
specific time periods during which clearing members may request 
withdrawals of margin, deliver depository receipts with respect to 
deposits in lieu of margin, or withdraw depository receipts. OCC is 
replacing the deleted language with language that allows OCC to specify 
the time these transactions can be effectuated. This change provides 
OCC with greater flexibility in altering these time periods in response 
to changing business needs and emergency situations.
    The third revision is the addition of an Interpretation and Policy 
to Rule 604, which currently requires that for stocks to be eligible as 
a margin deposit they must have a market value greater than $10 per 
share. The revision will clarify OCC's policy to accept for deposit 
securities that do not satisfy the requirements of the rule or retain 
on deposit previously deposited securities that no longer satisfy such 
requirements without giving margin credit for these deposits. Clearing 
members sometimes desire to deposit with OCC stocks with a market price 
slightly below $10 per share in anticipation that the price will rise 
above $10 per share. Alternatively, the market price of a previously 
deposited stock may fall below $10 per share. The rule change clarifies 
that in either case, OCC would hold the deposit if the clearing member 
so desired but would assign a value of zero for margin purposes unless 
and until the price exceeded $10 per share.
OCC's Proposed By-Law and Rule Changes
    To effectuate these revisions, OCC is revising its By-Laws and 
Rules. First, OCC is amending the definition of ``EDP Pledge System'' 
in Article I of its By-Laws to include an OCC system such as ENCORE. 
The term ``EDP Pledge System'' is used in, among other places, Rule 
604, which requires an electronic margin deposit be made via an ``EDP 
Pledge System'' to be effective. Currently, the definition of ``EDP 
Pledge System'' includes only systems of an approved depository, such 
as DTC. The proposed amendment is necessary to allow electronic 
deposits to be made through the ENCORE system.
    Second, OCC is amending Rule 604(b)(1) to provide that both U.S. 
and foreign government securities must be valued no less frequently 
than daily. The rule currently provides that U.S. government securities 
are valued no less frequently than monthly. The change will conform the 
rule to OCC's practice of valuing these securities daily. For similar 
reasons, OCC is amending Rule 604(b)(2) to provide that GSE debt 
securities will be valued no less frequently than daily.
    Third, OCC is adding an Interpretation and Policy .13 to Rule 604 
to state that OCC will accept for deposit securities that do not 
satisfy the requirements of the rule or will retain on deposit 
previously deposited securities that no longer meet those requirements 
but will not give margin credit for these deposits unless and until 
they do satisfy the rule.
    Finally, OCC is amending Rules 608, 610(i), and 610(j), which 
currently prescribe specific time periods during which clearing members 
may request withdrawals of margin, deliver depository receipts with 
respect to deposits in lieu of margin, or withdraw depository receipts. 
The amendments replace references to specific times with a reference to 
``such times as the Corporation may specify.'' This will allow OCC to 
establish these times as

[[Page 17282]]

business needs or emergency situations require.
    OCC believes the proposed rule change is consistent with the 
requirements of Section 17A of the Act \3\ and the rules and 
regulations thereunder applicable to OCC because (i) the primary change 
would provide for a more efficient means for clearing members and banks 
to process deposits and releases of securities used as margin deposits 
or clearing fund contributions and (ii) the remaining changes would 
clarify provisions of OCC's rules, conform the rules to OCC's current 
practices, or provide OCC with greater flexibility to establish time 
periods with regards to withdrawals of margin and delivery and 
withdrawal of depository receipts. The rule change is not inconsistent 
with the existing rules of OCC, including any other rules proposed to 
be amended.
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    \3\ 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 will have an 
impact or 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 rules 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 upon filing pursuant 
to Section 19(b)(3)(A) of the Act \4\ and Rule 19b-4(f) \5\ thereunder 
because the proposed rule does not significantly affect the respective 
rights or obligations of the clearing agency or persons using the 
service and does not adversely affect the safeguarding of securities or 
funds in the custody or control of OCC or for which it is responsible. 
The rule change will be implemented on the availability of the related 
systems changes to ENCORE, OCC's clearing system, which are scheduled 
for implementation on April 4, 2005. At any time within sixty 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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    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f).
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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-2005-03 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-2005-03. 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 filings 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-2005-03 and should be submitted on 
or before April 26, 2005.

    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. E5-1514 Filed 4-4-05; 8:45 am]
BILLING CODE 8010-01-P