
[Federal Register Volume 77, Number 217 (Thursday, November 8, 2012)]
[Notices]
[Pages 67036-67037]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-27293]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68148; File No. SR-OCC-2012-17]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, Relating to the Margining of Segregated Futures Customer 
Accounts on a Gross Basis

November 2, 2012.

I. Introduction

    On September 14, 2012, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change SR-OCC-2012-17 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published in the Federal 
Register on September 26, 2012.\3\ On October 11, 2012, OCC filed 
Amendment No. 1 to the proposed rule change.\4\ The Commission did not 
receive any comments on this proposal. This order approves the proposed 
rule change.\5\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ ``Notice of Filing of Proposed Rule Change Relating to the 
Margining of Segregated Futures Customer Accounts on a Gross 
Basis,'' Release No. 34-67896 (September 20, 2012), 77 FR 59231 
(September 26, 2012).
    \4\ In Amendment No. 1, OCC proposed wording changes and 
responded to a CFTC interpretation concerning what constitutes 
initial margin. Specifically, it amended the text of Rule 601 by 
inserting the word ``initial'' before the word ``margin,'' to more 
closely parallel CFTC Rule 39.13(g)(8)(i)4 which 
references ``initial margin.'' It also amended Item 3 of Form 19b-4 
to, first, include CFTC's definition of ``initial margin'' and 
second, to clarify which components of OCC's margin calculations 
meets the definition of ``initial margin'' as the term is defined 
under CFTC Rules. Amendment No. 1 is technical in nature, and 
therefore the Commission is not publishing Amendment No. 1 for 
public comment.
    \5\ OCC also filed an advanced notice relating to these proposed 
changes. The advance notice was published on October 1, 2012. 
``Advance Notice Relating to the Margining of Segregated Futures 
Customer Accounts on a Gross Bases,'' Release No. 34-67921 
(September 25, 2012), 77 FR 59998 (October 1, 2012). The Commission 
did not receive any comments on this publication.
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II. Description of the Proposed Rule Change

    The purpose of this proposed rule change is to provide for the 
calculation of initial margin for OCC segregated futures customer 
accounts on a gross basis, as required by CFTC Rule 39.13(g)(8)(i).\6\
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    \6\ 17 CFR 39.13(g)(8)(i).
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The CFTC's Customer Gross Margin Rule

    On October 18, 2011, the CFTC issued final regulations implementing 
many of the new statutory core principles for CFTC-registered 
derivatives clearing organizations (``DCOs'') enacted under the Dodd-
Frank Wall Street Reform and Consumer Protection Act (the ``Dodd-Frank 
Act''). As a registered DCO (as well as a registered securities 
clearing agency), OCC has previously implemented rule changes designed 
to bring OCC into compliance with CFTC rules applicable to DCOs that 
went into effect on January 9, 2012 \7\ and May 7, 2012.\8\ OCC 
believes it is necessary to amend its Rules in order to ensure 
compliance with the gross margin rule, which requires a DCO to 
``collect initial margin on a gross basis for each clearing member's 
customer account(s) equal to the sum of the initial margin amounts that 
would be required by the derivatives clearing organization for each 
individual customer within that account if each individual customer 
were a clearing member'' \9\ as required by CFTC Rule 39.13(g)(8)(i). 
The gross margin rule goes into effect on November 8, 2012; however, 
OCC proposed to begin complying with the gross margin rule on November 
5, 2012 as described herein.
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    \7\ See SR-OCC-2011-18.
    \8\ See SR-OCC-2012-06.
    \9\ Derivatives Clearing Organization General Provisions and 
Core Principles, 76 FR 69334, 69439 (November 8, 2011).
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OCC's System for Calculating Margin

    OCC currently calculates margin requirements for each clearing 
member's segregated futures customer account held at OCC on a net basis 
by applying OCC's System for Theoretical Analysis and Numerical 
Simulations (``STANS''). STANS calculates initial margin with respect 
to each account of a clearing member, including each clearing member's 
futures customer account(s), on a net basis. STANS includes both a net 
asset value (``NAV'') component and a risk component, with the risk 
component being the equivalent of ``initial margin'' as that term is 
defined under CFTC Rules. The NAV component marks all positions to 
market and nets long and short positions to determine the NAV of each 
clearing member's portfolio of customer positions. The NAV component 
represents the cost to liquidate the portfolio at current prices by 
selling the net long positions and buying in the net short positions. 
The risk component is estimated by means of an expected shortfall risk 
measure obtained from ``Monte Carlo'' simulations designed to measure 
the additional asset value required in any portfolio to eliminate an 
unacceptable level of risk that the portfolio would liquidate to a 
deficit.
    OCC presently lacks sufficient information about individual 
customer positions to calculate initial margin at the level of each 
individual customer. However, OCC has been coordinating with other DCOs 
to establish an industry-wide mechanism for complying with the customer 
gross margin rule. Pursuant to this new system, each DCO's clearing 
members will submit data files to the DCO identifying positions by 
numerical customer identifiers.\10\ OCC will use this information to 
calculate initial margins, using STANS, for each customer identifier of 
a clearing member and to aggregate those initial margin calculations to 
determine the total futures customer margin requirement for the 
clearing member's segregated futures customer account(s) held at 
OCC.\11\ OCC

[[Page 67037]]

will then compare the aggregate positions reported by each clearing 
member with its own records and make any needed adjustments to the 
initial margin calculation to ensure all positions on OCC's books are 
properly margined.
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    \10\ The position data provided to OCC by clearing members will 
not include (a) information with respect to the allocation of margin 
assets to particular customers, nor (b) information with respect to 
settlement obligations arising from the exercise, assignment or 
maturity of cleared contracts. For this reason, OCC will treat all 
margin assets and settlement obligations for each account to which 
the gross margin rule applies as being in sub-accounts of the 
Clearing Member. OCC will calculate margin, using STANS, separately 
for each sub-account and will aggregate the calculated margin 
requirements at the level of the clearing member's segregated 
futures customer account to which the sub-accounts relate.
    \11\ OCC currently carries the following account types that are 
segregated pursuant to Section 4d of the Commodity Exchange Act: 
Segregated Futures Accounts, Segregated Futures Professional 
Accounts, non-Proprietary X-M accounts, and internal non-proprietary 
cross-margining accounts. All such accounts would be margined on a 
gross basis under the proposed amendments to OCC Rule 601.
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Proposed By-Law and Rule Changes

    The proposed changes to OCC's Rules provide for the calculation of 
initial margin for segregated futures customer accounts on a gross 
basis and mandate submission of the clearing member data files 
necessary to allow OCC to calculate initial margin at the level of each 
futures customer. In the event that the data included in these data 
files is incomplete (for example, if OCC shows positions held in a 
clearing member's segregated futures accounts, but those positions are 
not reflected in the data file), OCC will create a separate sub-account 
to be used for initial margin calculation purposes only. Positions 
recorded on OCC's books and records, but not reflected in the data 
file, will be attributed to this sub-account and an initial margin 
amount will be calculated for the sub-account. This initial margin 
amount will be added to a clearing member's initial margin requirement. 
OCC has determined to adopt this approach to dealing with discrepancies 
between its own records and clearing member data files in order to 
ensure that OCC does not collect an inadequate amount of initial margin 
from clearing members.

III. Discussion of the Proposed Rule Change

    Section 19(b)(2)(C) of the Exchange Act \12\ directs the Commission 
to approve a proposed rule change of a self-regulatory organization if 
it finds that the proposed rule change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to such organization. Section 17A(b)(3)(F) of the 
Exchange Act \13\ requires that the rules of the clearing agency, among 
other things, are designed to promote the prompt and accurate clearance 
and settlement of securities transactions, and, to the extent 
applicable, derivative agreements, contracts, and transactions.
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    \12\ 15 U.S.C. 78s(b)(2)(C).
    \13\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission finds that the proposed rule change is consistent 
with the requirements of Section 17A of the Exchange Act \14\ because 
it is designed to permit OCC to perform clearing services for products 
that are subject to the jurisdiction of the CFTC without adversely 
affecting OCC's obligations with respect to the prompt and accurate 
clearance and settlement of securities transactions or the protection 
of securities investors and the public interest.
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    \14\ 15 U.S.C. 78q-1.
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \15\ and the 
rules and regulations thereunder.
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    \15\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (File No. SR-OCC-2012-17) be and 
hereby is approved \17\ as of the date of this order or the date of the 
``Notice of No Objection to Advance Notice Filing, as Modified by 
Amendment No. 1 Thereto, Relating to the Margining of Segregated 
Futures Customer Accounts on a Gross Basis'' (File No. SR-2012-17), 
whichever is later.
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    \16\ 15 U.S.C. 78s(b)(2).
    \17\ 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).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27293 Filed 11-7-12; 8:45 am]
BILLING CODE 8011-01-P


