[Federal Register Volume 74, Number 74 (Monday, April 20, 2009)]
[Notices]
[Pages 18013-18015]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-8963]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59763; File No. SR-OCC-2009-06]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Accommodate the Clearance and Settlement of Metals Futures and Options 
on Metals Futures Traded on NYSE Liffe

April 14, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 25, 2009, 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

[[Page 18014]]

primarily by OCC. OCC filed the proposal pursuant to Section 
19(b)(3)(A)(iii) of the Act \2\ and Rule 19b-4(f)(4) \3\ thereunder so 
that the proposal was effective upon filing with the Commission. 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).
    \2\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \3\ 17 CFR 240.19b-4(f)(4).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the rule change is to accommodate the clearance and 
settlement of: (i) 100 oz. gold futures, 5,000 oz. silver futures, 
``mini'' gold futures, and ``mini'' silver futures (collectively, 
``Metals Futures'') and (ii) options on 100 oz. gold futures and on 
5,000 oz. silver futures (collectively, ``Options on Metals Futures'') 
traded on NYSE Liffe.

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.\4\
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    \4\ 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

1. Metals Futures
    The primary purpose of this proposed rule change is to revise OCC's 
By-Laws and Rules (collectively, the ``Rules'') to accommodate the 
clearance and settlement of Metals Futures and Options on Metals 
Futures traded by NYSE Liffe.\5\ Delivery of the metals underlying the 
Metals Futures will be made through the facilities of NYSE Liffe by 
delivery of ``vault receipts'' (or, in the case of the ``mini'' futures 
contracts, through delivery of electronic ``warehouse depository 
receipts'') representing the underlying metals. Delivery is required 
upon maturity of any Metals Future that has not been closed out in an 
exchange transaction prior to the close of trading on the last trading 
day for the contract. In addition, delivery may be made, at the 
election of the seller of a Metals Future, on any business day during 
the delivery month. Delivery will be initiated by the submission to 
NYSE Liffe by the clearing member with a short position in the Metals 
Future of a notice of an Intent to Deliver. Obligations to take 
delivery of the underlying metal which is the subject of an Intent to 
Deliver will be assigned by NYSE Liffe to clearing members with long 
positions in the same Metals Future, and NYSE Liffe will notify OCC of 
the delivery and payment obligations of clearing members resulting from 
Intents to Deliver. Delivery of the vault receipts will be made through 
NYSE Liffe's facilities on the second day after submission of the 
Intent to Deliver or on maturity date, as applicable. Payment will be 
made through OCC's systems on this same date. Although delivery of the 
vault receipts is not made through OCC's systems, the Clearance and 
Settlement Services Agreement between OCC and NYSE Liffe (``Clearing 
Agreement'') provides that NYSE Liffe is deemed to represent to OCC in 
connection with its notification to OCC of an Intent to Deliver that it 
holds vault receipts sufficient to satisfy the delivery obligation of 
the clearing member submitting the Intent to Deliver. This provision is 
intended to ensure that delivery has been made by the delivering 
clearing member before OCC credits the purchase price to this clearing 
member. In addition, OCC will have a lien on the vault receipts from 
the time the Intent to Deliver has been submitted until physical 
delivery against payment has been made. OCC will collect initial margin 
and pay and collect variation margin for Metals Futures as in the case 
of any other futures contract.
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    \5\ The proposed amendments are also designed to accommodate 
cash-settled futures that NYSE Liffe intends to introduce shortly 
after the transition of clearing services to OCC.
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    The last trading day for Metals Futures is the third to last 
business day of the maturity month. The trading day for Metals Futures 
is 22 hours long and spans two calendar days. As a result, a clearing 
member may sell a Metals Future to offset a long position before an 
assignment is made or after an assignment has been made but before the 
clearing member learns of it. In this situation, the sale will be 
deemed to have created a new short position rather than closing out the 
long position. However, clearing members in this situation will be able 
to ``retender'' the underlying metals in satisfaction of their delivery 
obligations with respect to the short position.
    OCC proposes to expand Chapter 13 of the Rules to accommodate: (i) 
The settlement of Metals Futures by physical delivery; (ii) the 
granting of requests for offsets between full-sized and mini-sized 
Metals Futures in the same contract month and year; (iii) the 
retendering of a delivery in the event a clearing member is assigned an 
Intent to Deliver with respect to a long position that the clearing 
member has closed out; and (iv) the procedures to be followed in the 
event a clearing member fails to make physical delivery or payment at 
delivery settlement. Rule 1308 provides that, in the event of such a 
failure, OCC will make payment to the non-defaulting clearing member in 
an amount equal to the damages, as determined by OCC, incurred by the 
non-defaulting clearing member from such failure. The amount of the 
damages is charged by OCC to the defaulting clearing member.
2. Options on Metals Futures
    Options on Metals Futures are American style. The last trading day 
for Options on Metals Futures is normally the fifth business day prior 
to the first calendar day of the delivery month for the underlying 
future. Submission of exercise notices at expiration and at other than 
expiration will be governed by existing OCC Rules, as supplemented by 
proposed Rule 1305. At expiration, OCC will apply exercise-by-exception 
(``Ex-by-Ex'') processing procedures to expiring Options on Metals 
Futures. Under Ex-by-Ex processing procedures, a clearing member is 
deemed to have submitted exercise notices for options that are in the 
money by a specified amount (i.e., exercise threshold amount) unless 
the clearing member instructs OCC otherwise. The exercise threshold 
amount for Options on Metal Futures will be set at $.001. Article XII, 
Section 9 of the By-Laws would be amended to provide that the 
expiration time for futures and commodity options traded on NYSE Liffe 
will be 7 p.m. Central Time, which is different from the expiration 
time for other such options. OCC is also proposing to amend Rule 801 to 
permit clearing members to submit exercise notices for Options on 
Metals Futures on the business day prior to expiration. In light of the 
22-hour trading day for the Metals Contracts, filing, revoking, or 
modifying exercise notices, or submitting contrary exercise 
instructions in connection with Ex-by-Ex processing for Options on 
Metal Futures and certain other classes of contracts identified by OCC 
after applicable deadlines will be prohibited.
    NYSE Liffe will require that Metals Contracts be held separately 
from

[[Page 18015]]

contracts traded on other exchanges, which OCC understands is intended 
to prevent the offset for margin purposes of Metals Contracts against 
contracts traded on other exchanges. OCC is proposing to add an 
interpretation and policy to its Rules stating that futures markets may 
impose such a requirement and explaining how clearing members may 
satisfy this requirement. OCC will provide notice to clearing members 
that NYSE Liffe has such a requirement. Additional changes are proposed 
to introduce the terminology necessary to support clearance and 
settlement of Metals Contracts, allow for the use of cash settlement in 
the event of a shortage of an underlying interest, and require that 
clearing members holding positions in Metals Contracts be members of 
the relevant exchange. The latter point is necessary because delivery 
is affected through the facilities of the exchange.
    OCC assumed the clearing function for Metals Contracts traded on 
NYSE Liffe from CME Clearing during the last weekend of March 2009. In 
connection therewith, OCC and NYSE Liffe entered into the Clearing 
Agreement, which is generally similar to corresponding agreements 
between OCC and other futures exchanges but contains specific 
provisions concerning the delivery settlement since vault or warehouse 
depository receipts, as applicable, will be delivered through the 
facilities of NYSE Liffe. It further contains additional commercial 
terms relative to the treatment of trade data. OCC has prepared an 
information memorandum specifying the obligations of clearing members 
in connection with such transitions. The memorandum will be distributed 
to all clearing members and will be considered an OCC rule.
    The proposed rule change is consistent with Section 17A of the 
Act,\6\ as amended, because it is designed to permit OCC to perform 
clearing services for products that are subject to the jurisdiction of 
the Commodity Futures Trading Commission without adversely affecting 
OCC's obligations with respect to the prompt and accurate clearance and 
settlement of securities transactions or the protection of securities 
investors and the public interest. The proposed rule change applies 
substantially the same rules and procedures to transactions in Metals 
Futures and Metals Options as OCC applies to transactions in security 
futures and securities options.
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    \6\ 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 any 
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 relating to the proposed rule change have not yet 
been solicited or received. OCC will notify the Commission of any 
written comments received by OCC.

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)(iii) of the Act \7\ and Rule 19b-
4(f)(4) \8\ thereunder because the proposed rule change effects a 
change in an existing service of a registered clearing agency that: (i) 
Does not adversely affect the safeguarding of securities or funds in 
the custody or control of the clearing agency or for which it is 
responsible and (ii) does not significantly affect the respective 
rights or obligations of the clearing agency or persons using the 
service. 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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    \7\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \8\ 17 CFR 240.19b-4(f)(4).
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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-2009-06 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Elizabeth 
M. Murphy, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-OCC-2009-06. 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 Room, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. 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/publications/rules/proposed_changes/sr_occ_09_06.pdf. 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-2009-06 and should be submitted on or before May 11, 
2009.
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    \9\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-8963 Filed 4-17-09; 8:45 am]
BILLING CODE 8010-01-P