[Federal Register Volume 79, Number 222 (Tuesday, November 18, 2014)]
[Notices]
[Pages 68733-68736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-27195]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73577; File No. SR-OCC-2014-20]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Notice of Filing of Proposed Rule Change to Concerning Updates to 
Clearing Member Documents

November 12, 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 November 10, 2014, 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 OCC. OCC filed the proposed rule change pursuant 
to Section 19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(6) \4\ 
thereunder. 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).
    \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 the proposed rule 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 by The Options Clearing Corporation 
(``OCC'') would update the various contracts and forms that, in 
conjunction with OCC's By-Laws and Rules, establish and govern the 
relationship between OCC and each clearing member (collectively, the 
``Clearing Member Documents'').

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
    This proposed rule change would amend the Clearing Member Documents 
in order to: (i) Reduce the number of documents by eliminating outdated 
documents and combining similar documents, when possible; (ii) reflect 
OCC's current business and operational processes; and (iii) reflect 
changes in applicable law and conform the documents to OCC's current 
By-Laws and Rules. The proposed changes to the Clearing Member 
Documents would not alter any of the requirements for initial or 
continued OCC clearing membership.
Background
    The Clearing Member Documents, in conjunction with OCC's By-Laws 
and Rules, establish the relationship between OCC and each clearing 
member and serve as the legal foundation of OCC's ongoing legal and 
operational relationship with clearing members. OCC recently completed 
a comprehensive review (the ``Review'') of the Clearing Membership 
Documents with a view to revising the documents and ensuring that they 
are consistent with OCC's By-Laws and Rules and current operational 
processes.
    The Clearing Member Documents fall into five general categories:
    1. Application Documents. These are the primary documents used to 
identify an applicant's qualifications to become a clearing member of 
OCC.
    2. Core Agreements. These documents establish the contractual 
agreement between OCC and a clearing member and provide OCC with 
authority to carry out critical tasks related to clearing membership. 
These include, among other agreements, the Clearing Member Agreement 
and various authorizations to draft and authorized signature forms.
    3. Services Agreements. These documents govern the provision by OCC 
of various services to clearing members, such as internet and data 
distribution services.
    4. Appointment Forms. These documents permit clearing members that 
are not participants in National Securities Clearing Corporation 
(``NSCC'') and the Fixed Income Clearing Corporation (``FICC'') to, as 
applicable, effect settlement of physically-settled equity options, 
single stock futures and Treasury securities option contracts through 
appointment of another clearing member as its agent with respect to 
settlement of the relevant product.\5\
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    \5\ See, OCC Rules 901(f), 901(g) and 1403(a).
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    5. Product and Account Specific Forms. These documents facilitate a 
clearing member's ability to clear certain products or allow a clearing 
member to establish certain types of accounts such as a market maker 
sub-account.
Proposed Updates to the Clearing Member Documents
    A primary focus of the Review was to eliminate outdated documents 
and consolidate documents when possible. The Review resulted in the 
number of distinct Clearing Member Documents being reduced from 39 to 
21, either by eliminating documents that are no longer operationally 
required by OCC or by consolidating and streamlining previously 
distinct documents, each requiring separate execution, into one 
document. Attached as Exhibit 3 is a document that lists each of the 
current Clearing Member Documents and each of the proposed Clearing 
Member Documents after the consolidation and streamlining effort of the 
Review. Moreover, the Review did not result in any new substantive 
legal requirements being imposed upon clearing members.
    In addition, a significant number of the Clearing Member Documents 
are proposed to be updated to reflect terms used in OCC's By-Laws and 
Rules that have been revised since the Clearing Member Documents were 
created or last updated, as applicable. Set forth below is a summary of 
the significant updates proposed to be made to the Clearing Member 
Documents. The proposed revisions to the Clearing Member Documents will 
not result in any substantive changes to OCC's membership requirements.
Application Documents
    OCC proposes to revise the Application Documents to eliminate sole 
proprietorship from the category of applicants \6\ because OCC staff 
deemed it extremely unlikely that a sole proprietor would apply for 
clearing membership. The Application for Membership itself would be 
updated to include new categories of products an

[[Page 68734]]

applicant may apply to be approved to clear that have been added by OCC 
since the Application for Membership was created. The Application for 
Membership would also be streamlined to include representations and 
information previously obtained through separate forms.
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    \6\ The revised Application Documents will contain an ``other'' 
category of applicant, which could be used in the event a sole 
proprietor applies for clearing membership at OCC.
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    In addition to the changes described above, OCC proposes to revise 
the Letter of Authorization applicants for clearing membership provide 
to OCC, which authorizes an applicant's primary regulatory agency to 
directly notify OCC of an applicant's violation, or suspected 
violation, of the regulatory agency's financial requirements, and of an 
applicant's impending operational difficulties. OCC is proposing to 
broaden such authorization so that OCC may receive notification of an 
applicant's violation of any rule or regulation of the agency, and 
notification of the agency's knowledge of the applicant's violation of 
the rules of any relevant self-regulatory organization.
Core Agreements
    Like the Application Documents, the Core Agreements would be 
revised to eliminate the Sole Proprietorship category. OCC also 
proposes to revise the Clearing Member Agreement and Non-U.S. Clearing 
Member Agreement to remove outdated corporate procedures such as 
requiring a corporate seal, and to consolidate multiple signature pages 
that were formerly contained in separate documents into a single 
signature page included within the Clearing Agreement and the Non-U.S. 
Clearing Member Agreement.\7\ In addition, the Core Agreements would 
generally be streamlined to reduce unnecessary documents and to reduce 
the operational burden on clearing members. Specifically, the multiple 
versions of the Authorizations to Draft, which permit OCC to draft a 
clearing member's bank account, and the Clearing Member Certificate and 
Authorized Signatures, which certifies the individuals authorized to 
execute documents and submit instructions on behalf of a clearing 
member (``Authorized Signatories''), would be consolidated from 
separate forms based on the organizational form of the clearing member 
into single documents.
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    \7\ OCC also proposes to memorialize its existing practice that 
clearing members keep current information provided to OCC such as 
information provided pursuant to OCC Rule 203.
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    Furthermore, clearing members established as corporations would no 
longer be required to obtain a board of director's resolution in order 
to authorize specified officers to act on behalf of the corporation as 
Authorized Signatories. The requirement to obtain a board resolution 
presented a significant burden for these clearing members and was 
determined to be overly ministerial and unnecessary from a legal or 
operational perspective. Accordingly, the revised Clearing Member 
Authorized Signatory Certificate would only require corporate clearing 
members, like clearing members that are organized as limited liability 
companies or partnerships, to provide a certification by any officer 
that holds the rank of vice president or higher setting forth a list 
(including specimen signatures) of the corporation's Authorized 
Signatories. Moreover, this certificate would also permit clearing 
members to designate a person as ``Designated Representative'' of the 
clearing member. Designated Representatives, which do not have to be an 
Authorized Signatory, would be able to take action on behalf of the 
clearing member in connection with day-to-day routine operational 
matters such as submitting instructions through OCC's ENCORE system, 
ENCORE Security Updates and sub account and data distribution service 
changes. The creation of a Designate Representative is intended to 
facilitate a completion of routine operational matters.
Services Agreement
    OCC proposes to revise its Agreement for OCC Services to reduce the 
number of documents that a clearing member is required to execute and 
to move common contractual provisions from individual supplements to 
the Agreement for OCC Services into the master services agreement. 
Currently, the Agreement for OCC Services is a one-page master services 
agreement that further requires a clearing member to execute up to five 
different supplements setting forth the terms of various services that 
OCC may provide clearing members. Each supplement contains provisions 
pertinent to the particular service as well as a number of contractual 
provisions that are common across all supplements. OCC proposes to 
streamline this set of agreements by moving such common provisions to 
the revised Agreement for OCC Services. As a result, each of the 
supplements would contain only terms and conditions specific to the 
particular service being selected. These changes would not affect the 
any substantive terms of the Agreement for OCC Services or any of its 
supplements.
    In addition to streamlining the Agreement for OCC Services, OCC 
proposes to eliminate the supplement for internet access and move the 
substantive provisions of such supplement into the master services 
agreement. Due to the large scale, industry wide, adoption of the 
internet as the primary means of communication between entities in the 
financial industry, OCC believes that the master services agreement, 
and not a supplement, is the more appropriate location for contractual 
provisions pertaining to clearing member internet access.\8\ OCC is 
also proposing to generally update the Agreement for OCC Services to 
include or expand on standard contract terms such as provisions 
governing severability, waiver, governing law and assignment.
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    \8\ OCC also requires clearing members who use the internet as 
their primary means of communicating with OCC to maintain a back-up 
communication channel. See Securities Exchange Act Release No. 70704 
(October 17, 2013), 78 FR 63263 (October 23, 2013) (SR-OCC-2013-10).
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Appointment Forms
    The Appointment of Clearing Member Agreement permits clearing 
members that are not participants in NSCC to settle physically settled 
equity options and single stock futures through NSCC by appointing an 
``Appointed Clearing Member.'' OCC propose to update the agreement to 
require that the Appointed Clearing Member maintain the net capital 
required by OCC Rule 309A and remain subject to OCC Rule 309A until the 
appointment is terminated. OCC Rule 309A was not in place when the 
Appointment of an Appointed Clearing Member Agreement was created.
    In addition, the Designation of Clearing Member Agreement permits 
clearing members that are not participants in FICC to effect settlement 
of physically-settled Treasury securities options through a 
``Designated Clearing Member'' that is a participant in FICC. OCC 
proposes to revise the agreement to be more consistent with the 
Appointment of Clearing Member Agreement. Specifically, OCC proposes to 
amend the Designation of Clearing Member Agreement to: (1) Provide that 
certain failures under the agreement may be treated as a default or 
rule violation under OCC's By-Laws and Rules; (2) provide that the 
designation would remain effective for 30 calendar days after notice of 
revocation of the designation, and would remain effective thereafter 
with respect to obligations incurred prior to the effective date of the 
revocation; and (3) require additional representations from the 
Designated Clearing Member regarding its continued participation in 
FICC.

[[Page 68735]]

Product and Account Specific Forms
    OCC proposes to eliminate two product specific forms, the Portfolio 
Margining Notice and the Futures Customers' Segregated Account Letter, 
as they are no longer operationally necessary. Specifically, and with 
respect to the Futures Customers' Segregated Account Letter, OCC's By-
Laws and Rules contain the relevant customer segregated funds language 
required for Derivatives Clearing Organizations such as OCC by the 
Commodity Futures Trading Commission. OCC is also proposing to revise 
the Universal Market Maker Subaccount Letter, which is used to request 
an automated service whereby OCC directs transactions into 
``universal'' market maker subaccount for a designated market maker or 
designated group of market makers that trade across multiple 
exchanges,\9\ to conform the indemnity language to the standard 
indemnity language used in the other Clearing Member Documents.
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    \9\ Market making firms may have employees that trade across 
multiple exchanges, with each exchange identifying such employees 
with a different acronym(s). OCC's Universal Market Maker Subaccount 
service ensures that all trades entered into by a market marking 
firm are directed to a specified subaccount of its clearing firm at 
OCC for position and margin processing purposes.
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2. Statutory Basis
    OCC believes that the proposed rule change is consistent with 
Section 17A(b)(3)(F) of the Act,\10\ because the proposed rule change 
will remove impediments to and perfect the mechanism of a national 
system for the prompt and accurate clearance and settlement of 
securities transactions. The proposed rule change will achieve this 
purpose by, as set forth in Rule 17Ad-22(d)(1),\11\ providing for a 
well-founded, transparent and enforceable legal framework between OCC 
and its clearing members as well as between OCC and applicants for 
clearing membership. The proposed rule change will reduce the number of 
Clearing Member Documents by eliminating outdated agreements and 
combining similar agreements, updating the Clearing Member Documents to 
reflect OCC's current business and operational processes, and 
conforming the Clearing Member Documents to OCC's current By-Laws and 
Rules. These changes will more clearly set forth the legal relationship 
between OCC and its clearing members, as well as applicants for 
clearing membership, thereby removing any potential impediments that 
may have resulted from OCC continuing to use outdated Clearing Member 
Documents. 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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    \10\ 15 U.S.C. 78q-1(b)(3)(F).
    \11\ 17 CFR 240.17Ad-22(d)(1).
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(B) Clearing Agency's Statement on Burden on Competition

    OCC does not believe that the proposed rule change would impose a 
burden on competition.\12\ The updated Clearing Member Documents affect 
applicants for clearing membership as well as current clearing members 
since OCC intends to have each current clearing member re-execute the 
Clearing Member Documents applicable to its particular membership. No 
substantive requirements for clearing membership are proposed to be 
changed.
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    \12\ 15 U.S.C. 78q-1(b)(3)(I).
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    With respect to applicants for clearing membership, OCC believes 
that the proposed rule change will make the application process easier 
since the new Clearing Member Documents will consolidate clarified and 
more consistent with OCC's By-Laws and Rules. In addition, OCC will ask 
each current clearing member to re-execute only the Clearing Member 
Documents applicable to its particular membership. This request, which 
will be made of all clearing members, is administrative in nature and 
will not affect competition among clearing members. Accordingly, OCC 
does not believe that this proposed rule change will impose a burden on 
competition.

(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 proposed rule change does not:
    (i) Significantly affect the protection of investors and the public 
interest;
    (ii) impose any burden on competition; and
    (iii) become operative for 30 days from the day on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(a) of the Act and Rule 
19b-4(f)(6) thereunder.
    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.

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 for (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-OCC-2014-20 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-OCC-2014-20. 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_20.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-2014-20 and 
should

[[Page 68736]]

be submitted on or before December 9, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-27195 Filed 11-17-14; 8:45 am]
BILLING CODE 8011-01-P