[Federal Register Volume 79, Number 30 (Thursday, February 13, 2014)]
[Notices]
[Pages 8777-8778]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-03127]



[[Page 8777]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71505; File No. SR-OCC-2014-02]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Accommodate the Clearing of Physically-Settled Single Stock Futures 
for Which Delivery Would Occur on the First Business Day After the 
Maturity Date

February 7, 2014.
    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 January 28, 2014, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change described in Items I and II below, which Items 
have been prepared primarily by OCC. OCC has filed the proposal as a 
``non-controversial'' rule change pursuant to Section 19(b)(3)(A) of 
the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 87s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), OCC provided the Commission with written notice of its 
intent to file the proposed rule change, along with a brief 
description and the text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed change, or 
such shorter time as designated by the Commission.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    This proposed rule change would accommodate the clearing of 
physically-settled single stock futures (``SSFs'') for which delivery 
would occur on the first, rather than the third, business day after the 
maturity date of each such SSF.
    Initially, OneChicago, LLC (``OCX'') is proposing to list SSFs for 
which delivery would occur on the first business day after maturity. In 
connection therewith, OCC is proposing to enter into an amendment (the 
``Amendment'') to the Amended and Restated Security Futures Agreement 
for Clearing and Settlement Services dated May l5, 2012, between OCC 
and OCX (the ``Clearing Agreement''), in order to provide for OCX's 
indemnification of OCC for claims arising from representations OCX may 
make to buyers and sellers of security futures contracts, including 
SSFs, regarding the tax treatment of their purchase or sale.

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 these 
statements.

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

1. Purpose

Proposed Changes to OCC's Rules

    OCC is proposing to modify its rules to accommodate the clearing of 
a physically-settled SSF for which the delivery date would be the first 
business day following the maturity date (``T+1 SSFs'') rather than the 
third business day following the maturity date (``T+3 SSFs''). 
Currently, OCC only clears T+3 SSFs. In order to accommodate this 
different delivery schedule, OCC proposes to amend the definition of 
delivery date in Rule 1302 for physically-settled stock futures as well 
as to modify references to the timing of the delivery date for security 
futures in the broker-to-broker settlement procedures in Rule 903.
    Settlement of physically-settled SSFs is ordinarily effected 
through the National Securities Clearing Corporation (``NSCC''), 
pursuant to NSCC's rules and OCC Rule 901 regarding transactions in 
physically-settled stock futures. OCC has confirmed with NSCC that NSCC 
can operationally accommodate T+1 SSFs.\5\ As is the case for stock 
futures already cleared by OCC for which NSCC provides physical 
delivery settlement services, and in accordance with OCC Rule 601, OCC 
will collect risk margin from its clearing members on deliveries of T+1 
SSFs for one business day following the maturity date and release such 
risk margin to its clearing members on the second business day 
following the maturity date. OCC understands that, consistent with 
NSCC's rules, NSCC would also collect margin based on the mark-to-
market of the unsettled stock in the morning of the first business day 
following maturity in connection with receipt of the stock trade from 
OCC. This will result in a temporary double-margining of T+1 SSFs. As 
with existing physically-settled SSFs cleared by OCC, T+1 SSFs are 
futures and therefore not covered by the Third Amended and Restated 
Options Exercise Settlement Agreement dated as of February 16, 1995, 
between OCC and NSCC. OCC and NSCC will have no obligation to turn over 
to the other margin deposited by a clearing member that has been 
suspended.
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    \5\ In the event the security underlying a T+1 SSF is not 
eligible for physical delivery settlement at NSCC--for example, due 
to trading suspensions or delistings--OCC would instruct physical 
delivery settlement to occur on a broker-to-broker basis in 
accordance with the applicable provisions of Chapter IX of its 
Rules. As noted above, OCC proposes to modify Rule 903 to 
accommodate the one-day delivery date for T+1 SSFs.
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OCX's New Product and Amendment to the Clearing Agreement

OCX's New Product

    OCX is proposing to list weekly maturity T+1 SSFs [sic].\6\ OCX has 
de-listed its weekly maturity T+3 SSFs prior to the launch of weekly 
maturity T+1 SSFs, and will initially list weekly maturity T+1 SSFs on 
five to ten underlyings.\7\
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    \6\ The Commission Staff notes that this filing (SR-OCC-2014-02) 
does not encompass any proposal by OCX's to list weekly maturity T+1 
SSFs.
    \7\ OCC understands that OCX's monthly maturity SSFs will 
continue to be T+3 SSFs.
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Amendment to the Clearing Agreement

    OCC performs the clearing function for OCX pursuant to the Clearing 
Agreement, under which OCX agrees to indemnify and hold harmless OCC 
against any and all liabilities and costs in settlement in connection 
with any proceeding that arises out of, or is based upon, any violation 
or alleged violation by OCX of any law or governmental regulation. OCC 
and OCX have agreed to the proposed Amendment, which expands and 
clarifies this indemnification to include OCX's indemnification of OCC 
for claims that arise from any representations that OCX makes regarding 
the tax treatment of any futures product cleared pursuant to the 
Clearing Agreement, including SSFs.
    OCC believes the additional indemnification described above is 
appropriate because OCX has designed its proposed weekly maturity T+1 
SSFs with the intention that investors may enter into an ``exchange for 
physical'' transaction involving weekly maturity T+1 SSFs and receive 
the same tax treatment as parties to a stock loan transaction under 
Section 1058 of the Internal Revenue Code (the ``Code''). While stock 
loan transactions involve the transfer of a stock, which potentially 
could trigger recognition of a gain or

[[Page 8778]]

loss under the Code, under Code Section 1058 a transfer of securities 
under a stock lending arrangement satisfying certain conditions is 
generally not considered a recognition event. The Amendment is intended 
to provide for OCX's indemnification of OCC for any claims arising from 
the representations, if any, that OCX may make regarding the SSFs' 
eligibility for this tax treatment.
    Prior to the launch of the T+1 SSFs, OCC will send to clearing 
members and also post on its public Web site an Information Memo 
describing the features of T+1 SSFs, as described above.
2. Statutory Basis
    OCC believes the proposed rule change is consistent with Section 
17A(b)(3)(F) of the Act,\8\ because it will modify OCC's Rules in a 
manner that will promote the prompt and accurate clearance and 
settlement of derivative agreements for which OCC is responsible. By 
amending its rules to accommodate T+1 SSFs, in addition to T+3 SSFs, 
OCC will be able to clear and facilitate settlement of SSFs that will 
settle more promptly than SSFs currently cleared by OCC, thereby 
reducing systemic risk. In addition, and also consistent with Section 
17A(b)(3)(F) of the Act, the proposed rule change will continue to 
foster cooperation and coordination with persons engaged in the 
clearance and settlement of securities transactions \9\ because, as 
with T+3 SSFs, both OCC and NSCC will facilitate the settlement of T+1 
SSFs. 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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    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ Id.
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(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 purposes of the Act.\10\ With respect to any burden 
on competition among clearing agencies, OCC is the only registered 
clearing agency that performs central counterparty services for the 
security futures markets.
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    \10\ 15 U.S.C. 78q-1(b)(3)(I).
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    Changes to the rules of a clearing agency may have an impact on the 
participants in a clearing agency and the markets that the clearing 
agency serves. This proposed rule change primarily affects security 
futures clearing members and OCC believes that the proposed 
modifications would not unfairly inhibit access to OCC's services, or 
disadvantage or favor any particular user in relationship to another 
user, because the changes will affect all clearing members equally, T+1 
SSFs will be cleared using existing systems and T+1 SSFs will be 
margined similarly to existing products.
    For the foregoing reasons, OCC believes that the proposed rule 
change is in the public interest, would be consistent with the 
requirements of the Act applicable to clearing agencies, and would not 
impose a burden on competition that is unnecessary or inappropriate in 
furtherance of the purposes of 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

    Because the foregoing rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, the proposed change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6)(iii) thereunder.\12\
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    \11\ 15 U.S.C 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6)(iii). Notwithstanding the foregoing, 
OCC has indicated that implementation of this rule change will be 
delayed until this rule change is deemed certified under CFTC 
Regulation Sec.  40.6.
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    At any time within 60 days of the filing of such 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.

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-2014-02 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-2014-02. 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 of submission. 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 Section, 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 OCC 
and on OCC's Web site at http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_14_02.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-2014-02 and 
should be submitted on or before March 6, 2014.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated Authority.\13\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03127 Filed 2-12-14; 8:45 am]
BILLING CODE 8011-01-P