[Federal Register Volume 78, Number 99 (Wednesday, May 22, 2013)]
[Notices]
[Pages 30364-30365]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-12165]



[[Page 30364]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69595; File No. SR-OCC-2013-06]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Accommodate the Use of Vault Receipts or Warehouse Depository Receipts 
in Electronic Form, Rather Than Vault Receipts or Warehouse Depository 
Receipts in Physical Form, To Represent the Metals Underlying 
Physically-Settled Futures Contracts on Metals Traded by NYSE Liffe US 
LLC

May 16, 2013.
    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 May 13, 2013, The Options Clearing Corporation (``OCC'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
prepared by the clearing agency. OCC filed the proposed rule change 
pursuant to Section 19(b)(3)(A)(i) of the Act \3\ and Rule 19b(4)(f)(1) 
thereunder \4\ 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. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    OCC proposes to accommodate the use of vault receipts or warehouse 
depository receipts in electronic form (``electronic receipts''), 
rather than vault receipts or warehouse depository receipts in physical 
form, to represent the metals underlying physically-settled futures 
contracts on metals (``Precious Metals Futures'') traded by NYSE Liffe 
US LLC (``NYSE Liffe US'').

II. Clearing Agency'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.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    The primary purpose of this proposed rule change is to revise OCC's 
Rules (the ``Rules'') to accommodate NYSE Liffe US's transition to 
using electronic receipts, rather than vault receipts or warehouse 
depository receipts in physical form, to represent the metals 
underlying Precious Metals Futures. To make this accommodation, OCC 
proposes to revise its Rules regarding the delivery of the metals 
underlying such futures contracts to provide that the vault receipts 
used to facilitate settlement can be held in either electronic or 
physical form during a transition period and, after such transition 
period expires, must be in electronic form. In addition, the proposed 
Rules clarify that the warehouse depository receipts created by NYSE 
Liffe US represent a proportional interest in a specified pool of the 
vault receipts held by NYSE Liffe US for contracts such as 100 oz. gold 
futures and 5,000 oz. silver futures. Such warehouse depository 
receipts shall be used in the settlement of mini-sized gold and silver 
futures and shall, in all cases, be in electronic form. The proposed 
Rules also clarify that vault receipts that are subject to third party 
liens or encumbrances are not eligible to be delivered to settle 
obligations pertaining to Precious Metals Futures.
    In the event of a default or insolvency by either the delivering or 
receiving Clearing Member with respect to a Precious Metals Futures 
contract, OCC is required to pay damages to the non-defaulting Clearing 
Member. The amount of damages is determined by OCC, taking into account 
the delivery payment amount for the applicable Precious Metals Futures 
contract, the market price of the underlying interest, market 
conditions generally and reasonable and customary transaction costs 
applicable to transactions in the underlying interest. As a means of 
allowing OCC to complete delivery of the underlying precious metals 
owed by, or recover the amount of damages from, the defaulting Clearing 
Member, the proposed Rules authorize OCC to maintain a perfected 
security interest, or lien, in the vault receipts tendered for delivery 
during the delivery process. This lien will be automatically released 
at 10:00 a.m. Central Time on the related delivery date unless by such 
time OCC provides NYSE Liffe US with a notification that there was a 
default by the delivering Clearing Member, thereby keeping the lien in 
place. OCC intends to perfect its security interest in three ways: (a) 
By control; (b) by possession through a bailee; and (c) by filing 
financing statements.
Perfection by Control
    Revised Article 7 of the Uniform Commercial Code (``UCC'') permits 
a secured party with a security interest in an electronic document of 
title to perfect that security interest by ``control.'' Revised Article 
7 of the UCC is in effect in Illinois, but not in New York. OCC 
believes that certain procedures undertaken by NYSE Liffe US through 
its electronic delivery system, as detailed in the Amended and Restated 
Clearing Agreement (which is governed by the law of the state of 
Illinois), (a) conform to the requirements of Revised Article 7 of the 
UCC, as in effect in Illinois, and (b) are designed to effect the 
perfection of OCC's security interest in the electronic receipts 
through ``control.'' OCC effects perfection of its security interest in 
the electronic receipts by ``control'' in accordance with Revised 
Article 7 of the UCC, because NYSE Liffe US's electronic delivery 
system reliably establishes OCC as the transferee of such electronic 
receipts during the delivery process.
Perfection Through Bailee
    In the event a court applies the laws of a jurisdiction that has 
not adopted Revised Article 7 of the UCC, OCC believes that its 
security interest in the electronic receipts would still be perfected 
under Article 9 of the UCC because of the bailment arrangements in 
place with the vaults holding the underlying precious metals. Each 
vault will sign a vault agreement agreeing that the vault holds the 
metals on behalf of OCC during the delivery process. OCC is an express 
third-party beneficiary of these vault agreements.
Perfection by Filing Financing Statements
    In addition, both OCC's Rules and the Amended and Restated Clearing 
Agreement provide for a secondary method of perfecting OCC's security 
interest in both the electronic receipts and the underlying precious 
metals through the filing of financing statements against each Clearing 
Member in accordance with Article 9 of the UCC. Filing financing 
statements is an effective way to perfect the security interest in 
jurisdictions with, and without, Revised Article 7 of the UCC in 
effect.

[[Page 30365]]

    OCC believes that its primary and secondary perfection methods 
provide it with ample protection in the event of one of its clearing 
members fails to deliver a vault receipt that represent metals 
underling Precious Metals Futures. OCC perfected its security interest 
in such vault receipts through methods of perfection that work in 
jurisdictions that have adopted Revised Article 7 of the UCC, like 
Illinois, and in jurisdictions that have not, like New York. OCC has 
also adopted traditional perfection methods such as filing financing 
statements. Moreover, OCC requires each Clearing Member to deposit 
margin, which provides protection for OCC in the event of a Clearing 
Member's failure to satisfy its delivery or receipt obligations in 
respect of the settlement of Precious Metals Futures.
    The proposed changes to OCC's By-Laws and Rules are consistent with 
the purposes and requirements of Section 17A(b)(3)(A) of the Securities 
Exchange Act of 1934, as amended (the ``Exchange Act'' or ``Act''), 
because they are designed to permit OCC to perform clearing services 
for products that are subject to the jurisdiction of the Commodity 
Futures Trading Commission (the ``CFTC'') 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. They accomplish this purpose by 
revising existing procedures regarding the delivery of metals 
underlying certain physically-settled futures and futures option 
contracts to make express provision for the use of warehouse depository 
receipts in electronic form and for a transition to the use of vault 
receipts that are also in electronic form as a more efficient method of 
delivery consistent with evolving industry practice. The proposed rule 
change is not inconsistent with any rules of OCC, including any rules 
proposed to be amended.

(B) Clearing Agency's Statement on Burden on Competition

    OCC does not believe that the proposed rule change would impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the Act because it relates solely to a commodity futures 
product subject to the exclusive jurisdiction of the Commodity Futures 
Trading Commission and therefore will not have any impact, or impose 
any burden, on competition in securities markets or any other market 
governed by the Act.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    Written comments on the proposed rule change 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)(i) of the Act \5\ and paragraph (f)(i) of Rule 19b-4 
thereunder \6\ because it constitutes a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule. OCC states that it will delay the 
implementation of the rule change until it is deemed certified under 
CFTC Regulation Sec.  40.6.\7\ 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.
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    \5\ 15 U.S.C. 78s(b)(3)(A)(i).
    \6\ 17 CFR 240.19b-4(f)(1).
    \7\ 17 CFR 40.6.
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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 Number SR-OCC-2013-06 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-2013-06. 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 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 the filing also will be available 
for inspection and copying at the principal office of OCC and on OCC's 
Web site (http://www.theocc.com/about/publications/bylaws.jsp). 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-2013-06 and should be 
submitted on or before June 12, 2013.
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    \8\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-12165 Filed 5-21-13; 8:45 am]
BILLING CODE 8011-01-P