
[Federal Register: March 27, 2008 (Volume 73, Number 60)]
[Notices]               
[Page 16405-16407]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27mr08-92]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57543; File No. SR-OCC-2008-03]

 
Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Cross-Margining

March 20, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on January 29, 2008, 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)(iii) of the Act \2\ and Rule 19b-4(f)(4) \3\ 
thereunder so that 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)(iii).
    \3 \ 17 CFR 240.19b-4(f)(4).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change amends Article VI, Clearance of Exchange

[[Page 16406]]

Transactions, Section 24, Cross-Margining With Participating CCOs, 
paragraph (c) of OCC's By-Laws so that additional OCC-cleared products 
may be more easily added in the future by amending only the relevant 
Cross-Margining Agreement and not the By-Law provision.

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.\4\
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    \4 \ 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

    Existing cross-margining programs between OCC and certain other 
commodity clearing organizations (each a ``CCO'') permit positions in 
index futures and options on such futures cleared by the CCO to be 
cleared in a special proprietary or non-proprietary cross-margining 
account (``X-M Account'') at the CCO which is paired with a 
corresponding X-M account (proprietary or non-proprietary, as the case 
may be) at OCC in which securities options are cleared. A non-
proprietary X-M account is limited to options market-makers and other 
``market professionals.'' The non-proprietary cross-margining accounts 
are treated as futures customer accounts in that they are carried 
subject to the segregation provisions of Section 4d of the Commodity 
Exchange Act rather than as securities accounts subject to the 
Commission's Rule 15c3-3 and other customer protection rules under the 
Act. Paired X-M Accounts may be established by a ``joint clearing 
member'' of OCC and the CCO or by a ``pair of affiliated clearing 
members,'' one of which is a clearing member of OCC and the other of 
which is a clearing member of the CCO. The paired X-M Accounts are 
treated for margin purposes as if they were a single account, making it 
possible to margin the paired X-M Accounts based on the net risk of the 
potentially offsetting positions within them.
    In referring to the types of cleared contracts that may be carried 
in an X-M Account at OCC, paragraph (c) of Section 24 of Article VI of 
OCC's By-Laws presently refers only to options. The purpose of the 
proposed rule change is to expand this reference to include security 
futures, as defined in the Act and in the CEA, on exchange-traded funds 
(``ETFs'') based on broad-based securities indices and any other 
cleared contract, as defined in OCC's By-Laws, that has been approved 
for cross-margining by OCC's Board of Directors.\5\ The precise types 
of contracts that can be included in X-M Accounts in any particular 
cross-margining program are identified in a Cross-Margining Agreement 
between OCC and the CCO. The existing cross-margining programs are 
limited to index options and OCC-cleared options on ETFs and index 
futures cleared by a CCO. The immediate reason for expanding the types 
of cleared products that may be included in X-M Accounts at OCC is to 
permit security futures on ETFs based on broad-based securities indices 
to be included.\6\ However, OCC has determined to amend Article VI, 
Section 24(c) to make it as broad as possible so that additional OCC-
cleared products may be added in the future by amending only the 
relevant Cross-Margining Agreement and not this By-Law provision.
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    \5 \ ``Cleared contract'' is defined in Article I of OCC's By-
Laws to mean ``a cleared security or a commodity future or futures 
option that is cleared by the Corporation.'' The term ``cleared 
security'' is defined as ``an option contract (other than a futures 
option), a security future or a BOUND.'' In effect, therefore, the 
term ``cleared contract'' includes any derivative contract cleared 
by OCC.
    \6 \ The Chicago Mercantile Exchange Inc. (``CME'') also clears 
security futures contracts, which are reported to OCC under the 
terms of the Associated Clearinghouse Agreement between the 
organizations. Securities Exchange Act Release No. 46653 (October 
11, 2002), 67 FR 64689 (October 21, 2002) (File No. SR-OCC-2002-07). 
Under the terms of the OCC-CME cross-margining agreement, such CME-
cleared security futures are eligible contracts for purposes of 
cross-margining. However, OCC will not treat security futures on 
broad-based indices as eligible contracts until the CFTC issues an 
order providing relief from certain provisions of Section 4d(a) of 
the Commodity Exchange Act to permit the inclusion of such contracts 
as eligible contracts for purposes the OCC-CME cross-margining 
program.
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    The inclusion of security futures in cross-margining is not novel. 
Under Article VI, Section 25 of the By-Laws, OCC's own internal cross-
margining program for non-proprietary accounts already includes OCC-
cleared security futures along with all other cleared securities that 
may be cross-margined against any OCC-cleared futures products that are 
cleared by OCC in its capacity as a derivatives clearing organization 
regulated by the CFTC. Unlike the other cross-margining accounts, the 
internal cross-margining accounts are not limited to index options, 
index futures, and OCC-cleared ETF options. OCC has broad authority to 
designate any cleared contract as eligible for these accounts provided 
the contract has sufficient price correlation with other eligible 
contracts to provide significant risk reduction when positions are on 
opposite sides of the market. As a result, no rule change is needed to 
allow OCC to include futures on ETFs in these accounts. Moreover, 
cross-margining of all OCC-cleared securities with OCC-cleared futures 
and futures options occurs automatically in the firm account and other 
proprietary accounts because OCC's By-Laws permit any OCC-cleared 
contract to be carried in these accounts.
    The proposed rule change is consistent with the purposes and 
requirements of Section 17A of the Act because it enhances the utility 
of existing cross-margining programs by permitting the inclusion of 
products that did not exist at the time the cross-margining programs 
were established. Cross-margining enhances the safety of the clearing 
system while providing lower clearing margin costs to participants. 
Therefore, expanding the positions that may be included in X-M Accounts 
is beneficial to the clearing system and its participants. The proposed 
rule change is not inconsistent with the other rules of OCC, including 
any 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 \7\ and Rule 19b-4(f)(4) \8\ 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

[[Page 16407]]

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 could summarily abrogate 
such rule change if it appears to the Commission that such action was 
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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    \7\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \8\ 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-2008-03 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-2008-03. 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 Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of OCC. 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-2008-03 and should be 
submitted on or before April 17, 2008.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-6252 Filed 3-26-08; 8:45 am]

BILLING CODE 8011-01-P
