[Federal Register Volume 77, Number 233 (Tuesday, December 4, 2012)]
[Notices]
[Pages 71848-71850]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-29217]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68308; File No. SR-OCC-2012-21]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Changes 
to Explicitly State That OCC May Reject a Request for Withdrawal of 
Margin or Make an Intra-Day Margin Call in Situations Where a Clearing 
Member's Projected Settlement Obligations Could Exceed OCC's Available 
Liquidity Resources

November 28, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 26, 2012, 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. OCC filed the proposal 
pursuant to Section 19(b)(3)(A)(i) of the Act,\3\ and Rule 19b-4(f)(1) 
\4\ thereunder so that the proposal was effective upon filing with the 
Commission. 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).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of Terms of Substance of 
the Proposed Rule Change

    OCC proposes to explicitly state that OCC may reject a request for 
withdrawal of margin or make an intra-day margin call in situations 
where a clearing member's projected settlement obligations could exceed 
OCC's available liquidity resources.

II. Self-Regulatory Organization's Statement of 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.\5\
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    \5\ The Commission has modified the text of the summaries 
prepared by OCC.
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A. Self-Regulatory Organization's Statement of Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The purpose of the proposed rule change is to adopt certain 
interpretations under existing OCC Rules 608 and 609 in order to place 
clearing members on notice of situations in which OCC may exercise 
existing authority to reject a margin withdrawal request, or to make an 
intra-day margin call, including where a Clearing Member's projected 
settlement obligations could exceed OCC's available liquidity 
resources. For this purpose OCC would consider as liquidity resources 
only margin assets in the form of cash. In its sole discretion, OCC 
might also consider margin assets in the form of U.S. Government 
securities, which could be quickly converted to cash, and/or amounts 
that OCC would be able to borrow on short notice under its credit 
facility or otherwise.
    Rule 609 currently provides that ``[OCC] may require the deposit of 
such additional margin by any Clearing Member in any account at any 
time during any business day, as such officer

[[Page 71849]]

deems advisable to * * * protect [OCC], other Clearing Members or the 
general public.'' Rule 609 further provides that such intra-day margin 
calls must be satisfied in immediately available funds within one hour 
(or other prescribed time frame) after the issuance of the call. 
Ordinarily, clearing members are permitted to substitute other 
acceptable forms of margin assets to replace cash collected via an 
intra-day margin call. If a sufficient amount of such assets has been 
deposited to meet the clearing member's then current margin 
requirement, the clearing member may make a request to withdraw any 
excess margin pursuant to Rule 608. The return of specific excess 
margin assets, including cash, also may be requested, subject to the 
Rule's limitation that no clearing member may withdraw margin in any 
form or currency in excess of the amount of margin of that form or 
currency deposited in the clearing member's account from which the 
withdrawal is to be made. However, Rule 608 also provides that ``[OCC] 
may, if it deems advisable for any of the reasons described in Rule 
609, reject any such withdrawal request.'' Accordingly, in the event 
OCC determines that such actions are necessary for the protection of 
OCC, other clearing members, or the general public, OCC may require a 
clearing member to deposit additional margin in the form of cash 
through an intra-day margin call and preclude the withdrawal of some or 
all of such assets from OCC's system.
    OCC wishes to put Clearing Members on notice of certain specific 
circumstances in which OCC may take such actions under Rule 608 and 609 
by adopting a similar interpretation under each Rule. Specifically, OCC 
wishes to state expressly that it may refuse a margin withdrawal 
request or request additional intra-day margin where a Clearing 
Member's future settlement obligations could result in a need for 
liquidity in excess of available liquidity resources. Such action might 
be taken even though OCC has made no adverse determination as to the 
financial condition of the Clearing Member, the market risk of the 
Clearing Member's positions, or the adequacy of the Clearing Member's 
total overall margin deposited in the accounts in question.
    A circumstance in which OCC might desire to reject a margin 
withdrawal request or make an intra-day margin call to ensure that it 
had sufficient liquidity in connection with a pending settlement 
obligation involves the ``unwinding'' of a ``box spread'' position. A 
box spread position involves a combination of two long and two short 
options on the same underlying interest with the same expiration date 
that results in an amount to be paid or received upon settlement that 
is fixed regardless of fluctuations in the price of the underlying 
interest. Box spreads can be used as financing transactions, and they 
may require very large fixed payments upon expiration. In this 
situation, if much of the margin deposited by the relevant Clearing 
Member is in the form of common stock and if the Clearing Member failed 
to make the settlement payment, the available liquidity resources might 
be insufficient to cover the settlement obligation. In anticipation of 
this settlement, OCC might therefore require the Clearing Member to 
deposit intra-day margin in the form of cash, or reject a requested 
withdrawal of cash or U.S. Government securities, so that liquidity 
resources would be sufficient to cover the Clearing Member's settlement 
obligations. Under the proposed interpretations, OCC would always 
include margin assets of the relevant Clearing Member in the form of 
cash in determining available liquidity resources and could, in its 
discretion, consider the amount of margin assets in the form of highly 
liquid U.S. Government securities and/or the amount that OCC would be 
able to borrow on short notice. The proposed interpretations make it 
clear that OCC might exercise its authority under these Rules to 
address liquidity needs.
    OCC believes the proposed rule change is consistent with Section 
17A of the Act because it is designed to promote the prompt and 
accurate clearance and settlement of securities transactions,\6\ 
including the safeguarding of securities and funds related thereto, and 
to protect investors and persons facilitating transactions by and 
acting on behalf of investors. It does so by interpreting OCC's 
existing authority to require deposits of additional margin or to 
reject requests to withdraw margin, minimize OCC's liquidity risk, and 
preserve its liquidity resources. The proposed rule change is not 
inconsistent with the existing rules of OCC, including any other rules 
proposed to be amended.
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    OCC does not believe that the proposed rule change would impose a 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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)(ii) \7\ of the Act and Rule 19b-4(f)(1) \8\ thereunder 
because it constitutes a stated policy, practice, or interpretation 
with respect to the meaning, administration, or enforcement of an 
existing rule. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend 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.\9\
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    \7\ 15 U.S.C. 78s(b)(3)(A)(i).
    \8\ 17 CFR 240.19b-4(f)(1).
    \9\ 15 U.S.C. 78s(b)(3)(C).
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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 email to [email protected]. Please include 
File No. SR-OCC-2012-21 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-OCC-2012-21. This file 
number should be included on the subject line if email 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

[[Page 71850]]

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 Web site viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE., Washington, DC 20549 on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
such filing also will be available for inspection and copying at the 
principal office of ICE Clear Credit and on ICE Clear Credit's Web site 
at http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_12_21.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-2012-21 
and should be submitted on or before December 26, 2012.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-29217 Filed 12-3-12; 8:45 am]
BILLING CODE 8011-01-P