

[Federal Register: May 11, 2007 (Volume 72, Number 91)]
[Notices]               
[Page 26861-26862]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11my07-106]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55716; File No. SR-OCC-2006-15]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Granting Approval of a Proposed Rule Change Relating to the 
Approval of Fund Shares Deposited as Margin

May 7, 2007.

I. Introduction

    On August 31, 2006, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') 
proposed rule change SR-OCC-2006-15 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal 
was published in the Federal Register on March 29, 2007.\2\ No comment 
letters were received. For the reasons discussed below, the Commission 
is granting approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 55504 (March 21, 2007), 
72 FR 14844.
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II. Description

    The proposed rule change eliminates the requirement that OCC's 
Membership/Risk Committee approve classes of fund shares (e.g., ETFs) 
for deposit as margin. It deletes Interpretation and Policy .11 to Rule 
604, Forms of Margin, which requires that OCC's Membership/Risk 
Committee approve classes of fund shares for deposit as margin. 
Committee approval was deemed to be a prudent safeguard when OCC began 
accepting fund shares for deposit in 1997 because fund shares had only 
been trading since 1993, and OCC was not as familiar with them as it is 
today.\3\ In 1998, OCC began clearing options on fund shares.\4\ Since 
then, fund shares have become a widely used investment tool, and OCC 
has developed a broad understanding of the fund share marketplace. In 
light of these developments, OCC believes that fund shares should be 
accepted as margin under the same conditions that apply to the deposit 
of other equity securities without the need for Committee approval.
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    \3\ Securities Exchange Act Release No. 39104 (September 22, 
1997), 62 FR 50647 (September 29, 1997) (File No. SR-OCC-97-01).
    \4\ Securities Exchange Act Release No. 40132 (June 25, 1998), 
63 FR 36467 (July 6, 1998) (File No. SR-OCC-97-02).
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III. Discussion

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a clearing agency be designed to assure the safeguarding 
of securities and funds which are in its custody or control or for 
which it is responsible.\5\ OCC's Rule 604 provides that OCC may accept 
cash, letters of credit, and certain types of liquid securities. In our 
approval order of the 1997 proposed rule change to allow OCC to accept 
fund shares as margin, we noted that fund shares are typically traded 
and cleared like common stock and are typically held in book-entry form 
at a securities depository in which OCC can readily perfect a security 
interest.\6\ Given the liquid nature of fund shares and OCC's increased 
experience with evaluating the risks associated with fund shares, we 
are satisfied with OCC's determination that it is no longer necessary 
for its Membership/Risk Committee to approve classes of fund shares 
before the fund shares can be deposited as margin. Accordingly, the 
proposed rule should not affect OCC's obligation to assure the 
safeguarding of securities and funds which are in its

[[Page 26862]]

custody or control or for which it is responsible.
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    \5\ 15 U.S.C. 78q-1(b)(3)(F).
    \6\ Securities Exchange Act Release No. 39104 (September 22, 
1997), 62 FR 50647 (September 29, 1997) (File No. SR-OCC-97-01).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular Section 17A of the Act and the rules and regulations 
thereunder.\7\
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    \7\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-OCC-2006-15) be and hereby 
is approved.

    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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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-9086 Filed 5-10-07; 8:45 am]

BILLING CODE 8010-01-P
