
[Federal Register Volume 76, Number 92 (Thursday, May 12, 2011)]
[Notices]
[Pages 27697-27698]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11623]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64436; File No. SR-OCC-2011-05]


Self-Regulatory Organizations; Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Provide Flexibility to the 
Options Clearing Corporation With Respect to Its Obligations To Pay 
Settlement Amounts to Clearing Members Generally as Well as in 
Emergency Situations

May 6, 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 April 28, 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 purpose of the proposed rule change is to provide flexibility 
to OCC with respect to its obligations to pay settlement amounts to 
clearing members generally as well as in emergency situations.

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

    The purpose of this rule change is to revise OCC's By-Laws and 
Rules to provide flexibility to OCC with respect to its obligations to 
pay settlement amounts to clearing members generally as well as in 
emergency situations. The proposed rule amendments would change the 
current daily deadline for OCC to pay settlement amounts to clearing 
members from 10 a.m. to 1 p.m. (All times referred to in this filing 
are Central Time). In addition, in the event that an emergency 
condition exists, the Board of Directors (``Board'') or an authorized 
executive officer of OCC would be authorized to extend OCC's obligation 
to pay settlement amounts to clearing members beyond the 1 p.m. 
deadline.
    Currently, each business day morning, OCC is obligated to collect 
cash owed by its clearing members for the prior day's settlement 
activity by 9 a.m. OCC, in turn, is obligated to pay cash owed to its 
clearing members for the prior day's settlement activity by 10 a.m. 
This one-hour window is designed to ensure that OCC has collected all 
required settlement funds before having to disburse any settlement 
funds to its clearing members. Daily settlement activity includes 
obligations relating to: (1) The net premium payments arising from the 
prior day's option purchases and sales, (2) the mark-to-market of 
futures contracts and stock loan positions, and (3) exercises and 
assignments of cash-settled option contracts.
    OCC's settlement banks routinely approve and are required to honor 
the associated settlements made by OCC and OCC's clearing members 
within these time frames. On most business days, the entire bank 
approval process, which irrevocably obligates each settlement bank to 
make settlement, is completed by 8:30 a.m.
    Under OCC's rules, a failure by OCC to pay its daily settlement 
obligations to clearing members by 10 a.m. constitutes a default. 
During discussions amongst OCC's senior management of various potential 
extreme default and liquidity squeeze scenarios, including the possible 
default of one of OCC's largest clearing members, OCC analyzed the risk 
associated with not being able to immediately access liquidity 
resources in time to meet the 10 a.m. deadline for OCC to pay 
settlement amounts to clearing members. The deadline may be difficult 
to meet if, for example, OCC learned of a default near the 9 a.m. 
deadline. In such a circumstance, OCC would have only one hour or less 
(considering the time needed to process and communicate information) to 
access the funds necessary to meet the 10 a.m. deadline.
    OCC's immediate liquidity resources rely heavily upon its $2.0 
billion revolving credit facility (backed by Treasuries held in the 
clearing fund). A one-hour advance notice is required prior to OCC 
drawing funds from the credit facility. Beyond the credit facility, it 
would likely take more than one hour to raise cash by borrowing against 
the remaining clearing fund Treasuries (i.e., those Treasuries not 
securing the credit facility) either through tri-party repurchase 
agreements or a traditional bank loan.
    The main benefit of moving the deadline to 1 p.m. for OCC to pay 
clearing members settlement amounts is that it allows up to four hours 
(rather than one) within which OCC can meet its daily settlement 
requirement without being required to declare an emergency in order to 
do so. In addition, based on discussions with its settlement banks,

[[Page 27698]]

OCC believes that notwithstanding a change in the current 10 a.m. 
deadline to 1 p.m., the settlement banks will continue the current 
practice of approving settlements as soon as they can make a credit 
determination (i.e., confirm present funds or extend credit to the 
customer) and process OCC's payment requests, which are tasks that are 
typically completed by 8:30 a.m.
    OCC also has incorporated in its rules the authority to extend the 
deadline for it to pay settlement amounts to clearing members to the 
close of the Federal Reserve Banks' Fedwire Funds Service on a 
settlement day, if necessary, during an emergency situation.\4\ Such an 
extension is consistent with the emergency authority other 
clearinghouses have to deal with late settlement scenarios. The rule 
amendments would authorize the Board, Chairman of the Board, Management 
Vice Chairman, or President of OCC to delay settlement beyond 1 p.m. in 
emergency situations. The rule amendments would authorize the named 
officers to take such action because the decision may need to be made 
under time constraints where the Board (or even the Membership/Risk 
Committee) could not be convened in time to take the necessary 
action.\5\ OCC anticipates that the emergency authority would be used 
infrequently, if ever. Under proposed Rule 505, such authority could 
only be used upon a determination by the Board or an authorized officer 
that extension of the settlement time is necessary or advisable for the 
protection of OCC or otherwise in the public interest. In the event 
that the emergency authority is exercised, a number of protections are 
built into the process. For example, the determination and the reasons 
for the extension will be promptly reported to the Commission, the 
Commodities Futures Trading Commission, and any other regulatory or 
supervisory authorities having jurisdiction over OCC. In addition, the 
clearing members will be notified of the extension, and a report 
outlining the emergency actions will be maintained in OCC's records.
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    \4\ In the event that OCC is unable to pay settlement amounts to 
clearing members by the close of the Fedwire Funds Service on a 
settlement day due to an emergency or force majeure condition, OCC 
will seek appropriate relief from the regulatory or supervisory 
authorities having jurisdiction over OCC.
    \5\ Similar authority is provided to the OCC Chairman (or the 
Board) to summarily suspend a clearing member. See OCC Rule 1102.
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    For drafting clarity and economy, the specific settlement times 
have been removed from the applicable rules, a new definition of 
``settlement day'' has been created, and a revised definition of 
``settlement time'' has been inserted in Article I of the By-Laws.
    OCC believes the proposed rule changes are consistent with the 
requirements of Section 17A of the Act \6\ and the rules and 
regulations thereunder applicable to OCC because the rule amendments 
are designed to promote the prompt and accurate clearance and 
settlement of security transactions and to generally protect investors 
and the public interest by giving OCC flexibility to make settlement 
payments to its clearing members in a timely manner during normal and 
abnormal market conditions. The proposed rule change is not 
inconsistent with the existing rules of OCC, including any other rules 
proposed to be amended.
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    \6\ 15 U.S.C. 78q-1.
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(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-2011-05 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-2011-05. 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 Web site 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_05.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-2011-05 
and should be submitted on or before June 2, 2011.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11623 Filed 5-11-11; 8:45 am]
BILLING CODE 8011-01-P


