[Federal Register Volume 70, Number 79 (Tuesday, April 26, 2005)]
[Notices]
[Pages 21486-21488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1972]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51584; File No. SR-OCC-2005-04]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify Procedures With Respect to Deposits of Cash or Securities With 
an Escrow Bank for Short Positions in Stock Option or Index Option 
Contracts

April 20, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on April 1, 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 
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 rule change modifies OCC's procedures with respect to deposits 
of cash or securities with an escrow bank for short positions in stock 
option or index option contracts.

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

    OCC Rule 613 sets out procedures governing escrow deposits. Rule 
613(f) currently provides that OCC will send to each clearing member by 
9 a.m. Central Time on the first business day following each expiration 
date a list of each expired short position carried by that clearing 
member that was covered by an escrow deposit. By a prescribed deadline 
that same day, the clearing member is required to identify to OCC each 
short position on the list to which it has allocated an exercise 
notice. Based upon the information supplied by clearing members, by 9 
a.m. Central Time the next business day OCC makes available to escrow 
banks and clearing members a final list of expired short positions 
covered by escrow deposits and indicates whether an exercise notice has 
been allocated to each such short position.
    Rule 613(g) provides that OCC will release escrow deposits on its 
own initiative at 12 noon Central Time on the second business day 
following the expiration date with three exceptions. First, the release 
of an escrow deposit will be delayed if OCC is unable to produce the 
final list of expired short positions covered by escrow deposits within 
the time frame specified in its rules. Second, the release may be 
deferred if a clearing member carrying an expired short position 
covered by an escrow deposit fails to meet its margin or premium 
settlement obligations to OCC on the business day that the deposit 
would have been released. Third, if the final list shows that an 
exercise notice was allocated to an expired short position, the escrow 
deposit will not be released until 12 noon Central Time on the first 
business day after the exercise settlement date and can be delayed even 
further if National Securities Clearing Corporation (``NSCC'') notifies 
OCC that the clearing member has not met its settlement obligations. In 
that event, the deposit will not be released until the first business 
day after OCC receives confirmation that it has no further obligations 
to NSCC with respect to the short position or if OCC has directed that 
settlement be made other than through NSCC, until OCC receives 
confirmation that the settlement has been made.
    The processing of escrow deposits at expiration will be 
substantially simplified under ENCORE Release 4.5. OCC's report of 
expired positions covered by escrow deposits, the clearing

[[Page 21487]]

member's identification of exercises allocated to those positions, and 
OCC's final list of expired short positions covered by an escrow 
deposit will all be eliminated. Instead, OCC will automatically release 
index option escrow deposits at 6 p.m. Central Time on the exercise 
settlement date, provided that the clearing member has met its 
settlement obligations in the account in which the escrow deposit is 
held. OCC will automatically release equity option escrow deposits at 6 
p.m. on the business day after the exercise settlement date, provided 
that release may be delayed if NSCC notifies OCC that the clearing 
member has not met its settlement obligations. In that event, as under 
the existing rule, a deposit will not be released until OCC receives 
confirmation that it has no further obligations to NSCC with respect to 
the short position covered by the deposit. If OCC directs that 
settlement be made other than through NSCC, the deposit will not be 
released until OCC receives confirmation that settlement had been made. 
Clearing members or escrow banks still will be permitted to withdraw 
escrow deposits prior to the scheduled release time if the clearing 
member maintains sufficient margin with OCC after making the 
withdrawal.
OCC's Proposed Rule Changes
    In connection with the simplification of the escrow deposit system 
resulting from the installation of ENCORE Release 4.5, OCC is deleting 
Rule 613(f), which describes the various reports relating to expired 
short positions covered by escrow deposits. In addition, OCC is 
amending current Rule 613(g), which is redesignated as Rule 613(f), to 
change the time OCC will release equity option escrow deposits on its 
own initiative and to eliminate references to the final list of expired 
short positions covered by an escrow deposit provided for by current 
Rule 613(f). OCC is amending Rule 613(j) to delete references to the 
list of expired short positions covered by an escrow deposit, 
redesignating it as 613(i), and revising the reference to current Rule 
613(i), which is being redesignated as Rule 613(h). Rule 613(k) is 
redesignated as Rule 613(j).
    With respect to index option deposits, OCC is adding a new Rule 
1801(h) to provide that index option deposits will be released by OCC 
on its own initiative at 6 p.m. Central Time on the exercise settlement 
date so long as the clearing member has fully complied with its 
settlement obligations in the account in which the escrow deposit is 
held. The remaining subparagraphs of Rule 1801 are redesignated but are 
otherwise unchanged.
Amended and Restated On-Line Escrow Deposit Agreement
    Finally, OCC is amending the Amended and Restated On-Line Escrow 
Deposit Agreement entered into between it and banks participating in 
its escrow deposit program to reflect the procedural changes to the 
escrow deposit program described above.
    OCC believes the rule change is consistent with Section 17A of the 
Act \3\, as amended because it more closely aligns the procedures for 
the processing of releases of escrow deposits for expired short 
positions with the processing of releases of specific deposits and 
thereby improves the consistency and efficiency of such processing for 
OCC, clearing members, and custodian banks. 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 rule change, and none have been received.

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

    The foregoing proposed 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 it 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. 
At any time within sixty days of the filing of the proposed rule 
change, the Commission may summarily abrogate such 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-2005-04 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-2005-04. 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 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-2005-04 and 
should be submitted on or before May 17, 2005.


[[Page 21488]]


    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. E5-1972 Filed 4-25-05; 8:45 am]
BILLING CODE 8010-01-P