
[Federal Register Volume 76, Number 187 (Tuesday, September 27, 2011)]
[Notices]
[Pages 59750-59751]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-24673]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65370; File No. SR-OCC-2011-08]


Self-Regulatory Organizations; Options Clearing Corporation; 
Notice of Filing of Amendment No. 1 to Proposed Rule Change To Provide 
Specific Authority To Use an Auction Process as One of the Means To 
Liquidate a Defaulting Clearing Member's Accounts

September 21, 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 July 14, 2011, The Options Clearing Corporation (``OCC'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change. The proposed rule change was published for comment in the 
Federal Register on August 3, 2011.\3\ On September 15, 2011, OCC filed 
Amendment No. 1 to the proposed rule change.\4\ The proposed rule 
change as amended by Amendment No. 1 is described in Items I, II, and 
III below, which have been prepared primarily by OCC. The Commission is 
publishing this notice to solicit comments on Amendment No. 1 to 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.
    \3\ Securities Exchange Act Release No. 64982 (July 28, 2011), 
76 FR 46867 (August 3, 2011).
    \4\ The proposed rule change as originally filed would revise 
OCC Rule 1104 (margins deposited and contributions to the Clearing 
Fund) to clarify that the auction process is one way to liquidate a 
defaulting members accounts with respect to positions and collateral 
in a defaulting member's accounts. Amendment No. 1 to the proposed 
rule change would also revise OCC Rule 1106 (open positions of a 
suspended clearing member) in a similar manner. Accordingly, as 
amended, the proposed rule change would clarify that the auction 
process is one way to liquidate a defaulting members accounts with 
respect to positions and collateral in a defaulting member's 
accounts under both OCC Rule 1104 and OCC Rule 1106. Telephone 
conference between Stephen Szarmack, Vice President and Associate 
General Counsel, OCC, and Pamela Kesner, Special Counsel, Securities 
and Exchange Commission Division of Trading and Markets, on 
September 20, 2011.
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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 OCC specific 
authority to use an auction process as one of the means to liquidate a 
defaulting clearing member's accounts\5\.
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    \5\ The proposed rule change amends OCC Rules 1104 and 1106, 
which allow for liquidation upon the suspension of a clearing 
member. OCC Rule 1102 permits the Board of Directors or Chairman of 
OCC to suspend clearing members under a number of circumstances, 
including clearing member default. Telephone conference between 
Stephen Szarmack, Vice President and Associate General Counsel, OCC, 
and Pamela Kesner, Special Counsel, Securities and Exchange 
Commission Division of Trading and Markets, on September 20, 2011.
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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.

(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 rules to provide 
specific authority for OCC to use an auction process as one of the 
possible means by which OCC may liquidate a defaulting clearing 
member's accounts. An auction is likely to be the most efficient and 
orderly procedure practicable for closing out clearing member 
portfolios in some circumstances.
    The liquidation of open long and short positions through exchange 
transactions is an obvious means of closing out the positions of a 
defaulting member. However, auctions are increasingly viewed as an 
efficient and cost effective alternative for liquidating some or all of 
a clearing member's positions and collateral, especially where the 
positions are very large or in unstable market conditions. As compared 
to liquidating positions through exchange transactions, an auction may 
usually be expected to result in a shorter liquidation period and 
reduced execution risk. During Lehman Brothers Holdings Inc.'s 
liquidation, clearinghouses such as LCH.Clearnet and CME Clearing 
liquidated certain derivatives positions through auctions.
    Chapter XI of OCC's Rules, which governs the liquidation of a 
clearing member's accounts in the event of an insolvency, provides that 
margins deposited with the Corporation, contributions to the Clearing 
Fund and open positions of a suspended clearing member must be closed 
by OCC ``in the most orderly manner practicable.'' While OCC and its 
counsel believe that this language is broad enough to authorize a 
private auction, i.e., an auction limited to selected bidders, as a 
means of closing out open positions, OCC also believes that explicit 
authorization for a private auction procedure could reduce the 
likelihood of a legal challenge should such a procedure be utilized.
    The proposed change to OCC's rules is consistent with Section 17A 
of the Act, as amended (the ``Exchange Act''), because it is designed 
to promote the prompt and accurate clearance and settlement of security 
transactions, and generally protect investors and the public interest, 
by making more explicit OCC's ability to use an auction procedure to 
liquidate a defaulting clearing member's accounts. The proposed rule 
change is not inconsistent with the existing rules of OCC, including 
any other rules proposed to be amended.

[[Page 59751]]

(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 Amendment No. 1, including whether the proposed 
rule change is consistent with the Act and with respect to the 
following:
     The Commission requests comment regarding the types of 
circumstances in which an auction would or would not be the most 
orderly procedure practicable for closing out clearing member 
portfolios. For example, in what circumstances would a private auction 
be a more or less orderly procedure than liquidating the defaulting 
member's positions on a national securities exchange?
     The Commission requests comment on whether a private 
auction limited to selected bidders could impose any burden on 
competition. In what ways, if any, would the effects on competition 
vary based the types of firms that are allowed to participate in an 
auction and the method used to select such participants?
    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-2011-08 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-2011-08. 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 pm. 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_08_a_1.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-2011-08 
and should be submitted on or before October 12, 2011.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary .
[FR Doc. 2011-24673 Filed 9-26-11; 8:45 am]
BILLING CODE 8011-01-P


