

[Federal Register: November 28, 2006 (Volume 71, Number 228)]
[Notices]               
[Page 68874-68875]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28no06-102]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54785; File No. SR-OCC-2006-18]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Cash-Settled Interest Rate Futures

 November 20, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 3, 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. OCC filed the proposed rule change pursuant to 
Section 19(b)(3)(A) of the Act \2\ whereby 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\ 15 U.S.C. 78s(b)(3)(A)(ii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change allows OCC to clear and settle cash-
settled interest rate futures.

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.\3\
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    \3\ The Commission has modified parts of these statements.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The Philadelphia Board of Trade (``PBOT'') has proposed to trade 
futures contracts on the three-month London Interbank Offered Rate for 
U.S. dollars as announced by the British Bankers Association (``BBA'') 
(``LIBOR Futures''). PBOT intends to list LIBOR Futures with eleven and 
one-half consecutive years of daily maturities. A separate series of 
LIBOR Futures will mature on each day on which PBOT and OCC are both 
open for business. A new series will be opened each business day to 
replace the maturing series so that on any given date approximately 
2,900 series will be outstanding.
    The daily settlement price for each LIBOR Future will be the 
average of the closing PBOT best bid/best offer, and the final 
settlement price will be based on the three-month LIBOR rate as 
reported by the BBA in its daily fixing at 6 a.m. Greenwich Mean Time 
on the maturity date. PBOT has set the multiplier at $2,500 in order to 
size the contract to reflect the three-month return on a deposit of 
$1,000,000 earning interest at LIBOR. Prices for LIBOR Futures will be 
quoted as 100 minus a percentage rate expressed in increments of .0025. 
For example, if the three-month LIBOR rate is 5.0050%, the 100-RATE 
futures contract would be priced at 94.9950.
    The final variation payment will be made on the business day 
following the last day of trading and will equal the difference between 
the final settlement price and the most recent settlement price (or the 
contract price if the contract was entered into since the most recent 
daily settlement price was established) times the multiplier.
    Interest rate futures fall within the definition of ``commodity 
futures'' in Section 1a(4) of the Commodity Exchange Act (``CEA''), 
which includes ``all * * * rights, and interests in which contracts for 
future delivery are presently or in the future dealt in.'' OCC 
therefore proposes to clear this product in its capacity as a 
``derivatives clearing organization'' registered under Section 5b of 
the CEA. The Commission previously approved amendments to Article XII 
of OCC's By-Laws and Chapter XIII of OCC's Rules, both of which are 
titled Futures and Futures Options, to allow OCC to provide clearance 
and settlement services for commodity futures.\4\
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    \4\ Securities Exchange Act Release No. 45946 (May 16, 2002), 67 
FR 36056 (May 22, 2002) [File No. SR-OCC-2001-16].
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    OCC's rules currently provide for the trading of cash-settled 
futures contracts, and only very minor changes are needed to 
accommodate LIBOR Futures. From OCC's perspective, LIBOR Futures will 
look like any other cash-settled future. The proposed rule change 
amends OCC's By-Laws to add the defined term ``interest rate future'' 
and to revise the definition of ``multiplier'' to make it more generic 
and more accurate as applied to cash-settled futures contracts. The 
proposed rule change also amends the definition of ``unit of trading'' 
to make it more generic in its application to futures contracts even 
though for purposes of the present rule change there is no need to use 
the term with respect to interest rate futures. OCC further proposes to 
add a reference to interest rate futures in Rule 1301, which describes 
the manner in which variation payments are calculated.
    OCC is also making several changes to the Clearing Agreement with 
PBOT. The most significant of these changes is to expand the types of 
PBOT commodity contracts that are cleared and settled by OCC. The 
Clearing Agreement currently provides for the clearance and settlement 
of foreign currency futures only. OCC is proposing to amend Section 3 
of the Clearing Agreement to provide for the clearance and settlement 
of futures with underlyings other than foreign currencies as well as to 
accommodate the trading of futures options and commodity options, and 
to permit the parties to agree on underlyings for futures, futures 
options, and commodity options by completion and execution of a 
schedule in the form attached to the Clearing Agreement as Schedule C. 
The parties have also agreed upon and included with the Clearing 
Agreement a Schedule C-1 for interest rate futures. The provisions of 
Section 3 of the Amended and Restated Clearing Agreement with respect 
to the selection of underlying interests are similar to those in the 
Agreement for Clearing and Settlement Services between OCC and CBOE 
Futures Exchange, LLC (``CFE Agreement'') filed for immediate 
effectiveness in Filing No. SR-OCC-2003-06.\5\
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    \5\ Securities Exchange Act Release No. 49124 (January 26, 
2004), 69 FR 4554 (January 30, 2004).
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    In addition, OCC is proposing to amend the Clearing Agreement to: 
provide that OCC will attempt where possible to consult with PBOT with 
respect to margin requirements for products governed by the Clearing 
Agreement; allow PBOT to consult with OCC to the extent it believes 
margin requirements are too high or otherwise inappropriate; provide 
for

[[Page 68875]]

indemnification of OCC by PBOT based on claims of infringement of 
intellectual property rights or similar claims in connection with 
commodity contracts governed by the Clearing Agreement; and provide for 
the transfer of open positions from OCC to a successor clearing 
organization in the event PBOT makes alternative clearing arrangements. 
OCC is proposing to make several other less significant changes to the 
Clearing Agreement, many of which are designed to conform the Clearing 
Agreement to the agreement between OCC and CFE.
    OCC believes that the proposed rule change is consistent with 
Section 17A of the Act because it is designed to permit OCC to clear 
certain commodity futures transactions without creating any adverse 
impact upon the prompt and accurate clearance and settlement of 
transactions in securities. 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.

(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 \6\ and Rule 19b-4(f)(4) \7\ 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.
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    \6\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \7\ 17 CFR 240.19b-4(f)(4).
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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 e-mail to rule-comments@sec.gov. Please include 

File Number SR-OCC-2006-18 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-2006-18. 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-2006-18 
and should be submitted on or before December 19, 2006.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-20050 Filed 11-27-06; 8:45 am]

BILLING CODE 8011-01-P
