[Federal Register Volume 70, Number 73 (Monday, April 18, 2005)]
[Notices]
[Pages 20198-20199]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1807]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51521; File No. SR-OCC-2004-17]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of a Proposed Rule Change Relating to Calculating Net 
Capital Under OCC Rule 307

April 11, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on September 27, 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 Rule 307 by adopting 
Interpretation and Policy .01 (``IP .01'') thereunder that would 
require clearing members that could otherwise take advantage of 
Commission Rule 15c3-1(a)(6) under the Act to include the risk-based 
haircuts associated with proprietary securities positions in 
determining their compliance with OCC's minimum net capital 
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 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

    The purpose of this proposed rule change is to add IP .01 to OCC 
Rule 307. Rule 307 requires a clearing member to compute its ``net 
capital,'' ``aggregate indebtedness,'' and ``debt-equity total'' in 
accordance with Commission Rule 15c3-1 under the Act for purposes of 
OCC Rules.\3\ The proposed rule change would require clearing members 
that could otherwise take advantage of Commission Rule 15c3-1(a)(6) to 
deduct the risk-based haircuts associated with proprietary securities 
positions in determining their compliance with OCC's minimum net 
capital requirements.\4\ Although the exemption in Rule 15c3-1(a)(6) 
from the securities haircuts in Rule 15c3-1(c)(2)(vi) and Appendix A 
under Rule 15c3-1 ensures from a systemic standpoint that capital 
exists to support open positions, it does not ensure that capital is 
maintained in the entity to which OCC has credit exposure. As a result, 
OCC is exposed to the volatility of the positions relative to the 
clearing member's net income without any reserve against net capital. 
OCC believes that the exemption in Rule

[[Page 20199]]

15c3-1(a)(6) gives those clearing members added leverage enabling them 
to expand positions to several times their net capital.
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    \3\ OCC Rule 307 provides that a clearing member that is 
registered as a futures commission merchant and is not otherwise 
required to calculate net capital in accordance with Rule 15c3-1 may 
instead calculate net capital as required under the rules of the 
Commodity Futures Trading Commission.
    \4\ Rule 15c3-1 requires that every broker or dealer maintain 
net capital no less than the minimum net capital as set forth by the 
rule. Paragraph (c) of the rule defines net capital as the net worth 
of a broker or dealer, adjusted by among other things, securities 
haircuts that are set forth in paragraph (c)(vi) and appendix A of 
the rule. Paragraph (a)(6) allows market makers, specialists, and 
certain other dealers to elect to apply paragraph (a)(6)(iii) in 
lieu of paragraph (c)(vi) or Appendix A under Rule 15c3-1. In 
general, paragraph (a)(6)(iii) requires that a dealer maintain a 
liquidating equity with respect to securities positions in his 
market maker or specialist account at least equal to 25 percent of 
the market value of the long positions and 30 percent of the market 
value of the short positions.
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    In order to provide an adjustment period for those clearing members 
that may be affected by IP .01, IP .01 will not take effect until July 
27, 2005, for firms that are clearing members at the time when it 
becomes effective.
    OCC believes that the proposed rule change is consistent with the 
purposes and requirements of Section 17A of the Act, as amended, 
because it is designed to help assure the safeguarding of securities 
and funds which are in the custody or control of OCC or for which OCC 
is responsible.

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

    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 the proposed rule change or
    (b) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

VI. 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-2004-17 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-2004-17. 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-2004-17 and should be submitted on 
or before May 9, 2005.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-1807 Filed 4-15-05; 8:45 am]
BILLING CODE 8010-01-P