

[Federal Register: April 3, 2006 (Volume 71, Number 63)]
[Notices]               
[Page 16604-16605]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03ap06-85]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53530; File No. SR-OCC-2006-02]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to the Definition of Non-Customer

March 21, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 14, 2006, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which items have been prepared 
primarily by OCC. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change would clarify the definition of non-
customer as it relates to member affiliates.

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 such 
statements.\2\
---------------------------------------------------------------------------

    \2\ The Commission has modified parts of these statements.
---------------------------------------------------------------------------

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The proposed rule change clarifies that a broker-dealer member 
affiliate of a clearing member neither needs to consent to being 
treated as a non-customer nor to execute a non-conforming subordination 
agreement in order to be treated as a non-customer for purposes of 
OCC's By-Laws and Rules.
    In File No. SR-OCC-99-5, OCC changed its rules to allow an 
affiliate of a clearing member to designate itself as a non-customer 
under the Commission's hypothecation rules and OCC's By-Laws and Rules 
in order for the affiliate's transactions and positions to be 
commingled in its clearing member's firm and/or proprietary cross-
margin account, in order to make more favorable margin treatment of 
such positions possible.\3\ The purpose of File No. SR-OCC-99-5 was to 
conform OCC's Rules to the terms of a no-action letter issued by the 
Division of Market Regulation, which set forth requirements for a 
member affiliate to designate itself as a non-customer.\4\ 
Specifically, that letter required each non-broker-dealer member 
affiliate whose securities positions would be hypothecated to consent 
to being treated as a non-customer and to execute a non-conforming 
subordination agreement meeting certain criteria accompanied by an 
opinion of counsel regarding the legal authority of the member 
affiliate to so subordinate its claims. The requirement that a non-
broker-dealer member affiliate provide its clearing member with an 
executed non-conforming subordination agreement was intended to ensure 
that such member affiliate would not be a customer for purposes of SEC 
Rule 15c3-3. Because broker-dealers are already excluded from the 
definition of customer in Rule 15c3-3, there was no need to require 
broker-dealer affiliates to execute such a subordination agreement. OCC 
is filing this rule change to clarify the definition of non-customer as 
it relates to member affiliates so that it more closely conforms to the 
terms of the no-action letter.
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 43668 (December 4, 
2000), 66 FR 77413 (December 11, 2000).
    \4\ Letter from Michael A. Macchiaroli, Associate Director, 
Division of Market Regulation, to William H. Navin, EVP and General 
Counsel, OCC (June 15, 2000).
---------------------------------------------------------------------------

    OCC believes that the proposed change is consistent with Section 
17A of the Act because it clarifies an existing OCC rule to allow the 
positions of broker-dealer member affiliates to be included in a 
clearing member's firm account and/or proprietary cross-margining 
account, which will result in more favorable margin treatment and 
encourage participation in cross-margining. The proposed rule change is 
not inconsistent with the existing rules of OCC, including any other 
rules proposed to be amended.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    OCC does not believe that the proposed rule change would impose any 
burden on competition.

[[Page 16605]]

(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)(iii) of the Act \5\ and Rule 19b-4(f)(4) \6\ promulgated 
thereunder because the proposal effects a change in an existing service 
of OCC that (A) does not adversely affect the safeguarding of 
securities or funds in the custody or control of OCC or for which it is 
responsible and (B) does not significantly affect the respective rights 
or obligations of OCC 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.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \6\ 17 CFR 240.19-4(f)(4).
---------------------------------------------------------------------------

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 rule-comments@sec.gov. Please include 

File Number SR-OCC-2006-02 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-OCC-2006-02. 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 Section, 100 F Street, 
NE., Washington, DC 20549. 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.optionsclearing.com.

    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-2006-02 
and should be submitted on or before April 24, 2006.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Nancy M. Morris,
Secretary.
 [FR Doc. E6-4756 Filed 3-31-06; 8:45 am]

BILLING CODE 8010-01-P
