
[Federal Register Volume 76, Number 67 (Thursday, April 7, 2011)]
[Notices]
[Pages 19512-19514]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-8235]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64167; File No. SR-OCC-2011-03]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change to Allow for an Expansion of 
OCC's Internal Cross-Margining Program to Include the Ability of a Pair 
of Affiliated Clearing Members to Establish an Internal Non-Proprietary 
Cross-Margining Account

April 1, 2011.
    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 March 17, 2011, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-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 would expand OCC's internal cross-
margining program to permit a pair of affiliated clearing members to 
establish a cross-margining account (``Internal Non-Proprietary Cross-
Margining Account'') in which securities and security futures that are 
cleared by OCC in its capacity as a securities clearing agency may be 
cross-margined with commodity futures and options on such futures that 
are cleared by OCC in its capacity as a derivatives clearing 
organization (``DCO'') registered with the Commodity Futures Trading 
Commission (``CFTC'') under the Commodity Exchange Act (``CEA'').

[[Page 19513]]

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

    In 2004, the CFTC and the Commission \4\ approved OCC's proposal to 
create an ``internal cross-margining'' program under which an OCC 
clearing member could elect to cross-margin a non-proprietary futures 
account of a ``market professional'' (as defined in OCC's By-Laws) \5\ 
with a non-proprietary securities account containing positions of the 
same market professional. At OCC, the securities and futures positions 
of all market professionals with cross-margined accounts at the 
clearing member are combined in a single Internal Non-Proprietary 
Cross-Margining Account of the clearing member at OCC. The existing 
program, which has operated successfully since 2004, requires that the 
same clearing member clear the securities and futures positions. In 
contrast, the existing cross-margining programs between OCC and other 
DCOs such as the clearing division of the Chicago Mercantile Exchange 
(``CME'') and ICE Clear U.S. permit cross-margining where the member of 
the futures clearing organization is a different entity from its 
affiliate that is an OCC clearing member. The purpose of this proposed 
rule change is to expand the existing internal cross-margining program 
in an analogous way so that it would permit an Internal Non-Proprietary 
Cross-Margining Account to be maintained at OCC jointly by a pair of 
affiliated clearing members that clear transactions in securities 
options and in futures products through two different entities. In 
order to participate, both OCC clearing members would have to be 
affiliates of one another and would have to be registered as both a 
futures commission merchant under the CEA and as a broker-dealer under 
the Act.
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    \4\ Securities Exchange Act Release No. 34-50509 (October 8, 
2004), 69 FR 61289 (October 15, 2004).
    \5\ A market professional could be a market-maker, specialist or 
person acting in a similar capacity on a securities exchange, or a 
member of a futures exchange trading for its own account. A non-
proprietary market professional is any market professional that is 
required to be treated as a ``customer'' under the CEA, and 
therefore excludes any market professional that is affiliated with 
the carrying clearing member in a way that would cause its account 
to be treated as a ``proprietary account'' under Section 1.3(y) of 
the CFTC's regulations.
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    OCC's current internal cross-margining program does not provide for 
internal cross-margining accounts to be carried jointly by a pair of 
affiliated clearing members because OCC did not believe in 2004 that 
there was any clearing member demand for such a service. Recently, 
however, OCC has learned that there is demand for such a service. Under 
OCC's current proposal, two affiliated clearing members could jointly 
maintain an Internal Non-Proprietary Cross-Margining Account. The 
clearing member that normally clears transactions in securities options 
would submit transactions in eligible securities options to the account 
for clearance, and the clearing member that normally clears 
transactions in futures products would submit transactions in eligible 
futures products to the account for clearance.
    OCC proposes to amend its current By-Laws and Rules governing 
internal cross-margining to create rules similar to the rules of the 
long-standing cross-margining program for affiliated clearing members 
between OCC and CME, for example. In the case of the cross-margining 
programs between OCC and other DCOs, there are two accounts at the 
clearing level--one at each of the participating clearing 
organizations. In the internal cross-margining program, there is no 
need for two separate accounts, which would in any event be margined 
together and for which the affiliated clearing members would in any 
event be jointly and severally liable as they are for the two accounts 
in the case of the OCC-CME program.
    Article VI, Section 25(b) of OCC's By-Laws currently requires 
clearing members to obtain a ``Market Professional's Agreement for 
Internal Cross-Margining'' from each market professional whose 
positions are included in an Internal Non-Proprietary Cross-Margining 
Account. OCC proposes to use a modified form of this agreement for an 
account held jointly by a pair of affiliated clearing members. The 
proposed form of the agreement, titled ``Market Professional's 
Agreement for Internal Cross-Margining (Affiliated Clearing Members)'' 
is attached as Exhibit 5A to this proposed rule change filing. The 
existing ``Market Professional's Agreement for Internal Cross-
Margining'' applicable to the internal cross-margining program for 
single clearing members has been retitled ``Market Professional's 
Agreement for Internal Cross-Margining (Single Clearing Member)'' and 
is attached as Exhibit 5B to this proposed rule change filing. In 
addition to modifying the title to the form of the agreement applicable 
to single clearing members, a sentence has been added at the end of 
paragraph seven of that agreement to conform it to the corresponding 
provision in the form of the agreement for affiliated clearing members. 
OCC does not intend to require current participants in the internal 
cross-margining program to obtain reexecuted agreements in updated form 
because the modifications are clarifications only and not substantive 
changes.
    As in the case of the existing internal cross-margining program, 
the Internal Non-Proprietary Cross-Margining Account would be treated 
as a segregated futures account under Section 4d of the CEA and, in 
accordance with Appendix B to Part 190 of the CFTC's regulations, would 
be separately segregated from the regular segregated futures account 
that an OCC clearing member may maintain under Article VI, Section 3(f) 
of OCC's By-Laws. In order to expand the internal cross-margining 
program to include accounts carried by pairs of affiliated clearing 
members, OCC is requesting that the CFTC either issue a new or amended 
order under Section 4d of the CEA.
    Since it granted approval of the first cross-margining program in 
1988,\6\ the Commission has found that cross-margining programs are 
consistent with clearing agency responsibilities under Section 17A of 
the Act\7\ and highly beneficial to the clearing organization, its 
clearing members and the public. OCC believes that cross-margining 
programs enhance clearing member and systemic liquidity, resulting in 
lower initial margin deposits. They reduce the risk that a clearing 
member will become insolvent in a distressed market and the 
corresponding risk that one insolvency could lead to multiple 
insolvencies in a ripple effect, and they enhance the security of the 
clearing system.\8\
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    \6\ Securities Exchange Act Release No. 34-26153 (October 3, 
1988), 53 FR 39567 (October 7, 1988).
    \7\ 15 U.S.C. 78q-1.
    \8\ Securities Exchange Act Release No. 34-32708 (August 2, 
1993), 58 FR 42586 (August 10, 1993).
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    OCC would not implement the internal cross-margining program for 
affiliated clearing members until such time after the CFTC has issued 
an order

[[Page 19514]]

or amended order under Section 4d of the CEA as discussed above.

(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 relating to the proposed rule change have not been 
solicited or received. OCC will notify the Commission of any written 
comments received by OCC.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will: 
(A) By order approve or disapprove the proposed rule change or (B) 
institute proceedings to determine whether the proposed rule change 
should be disapproved.

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 Commissions 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-2011-03 on the 
subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2011-03. 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 website 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 a.m. and 3 p.m. Copies of such filings will also be available for 
inspection and copying at the principal office of OCC and on OCC's Web 
site at http://www.optionsclearing.com/components/docs/legal/rules_and_bylaws/sr_occ_11_03.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-2011-03 
and should be submitted on or before April 28, 2011.

    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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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8235 Filed 4-6-11; 8:45 am]
BILLING CODE 8011-01-P


