
[Federal Register Volume 79, Number 109 (Friday, June 6, 2014)]
[Notices]
[Pages 32801-32803]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-13203]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72294; File No. SR-OCC-2014-12]


Self-Regulatory Organization; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Make The Options Clearing 
Corporation's Existing Policy Concerning Specified Concentration Limits 
Related to Deposits of Certain Letters of Credit Applicable to All 
Letters of Credit

June 2, 2014.
    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 May 20, 2014, 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 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. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    OCC proposes to amend Rule 604 in order to make OCC's existing 
policy concerning specified concentration limits related to deposits of 
certain letters of credit applicable to all letters of credit.

II. Clearing Agency'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

[[Page 32802]]

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) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to make OCC's existing 
policy concerning concentrated margin deposits of certain issuers of 
letters of credit (``LC'') applicable to all LC issuers. Currently, OCC 
imposes concentration limits on clearing member margin deposits of LCs 
issued by certain non-U.S. institutions.\3\ Specifically, OCC limits 
the concentration of a clearing member's margin deposits of LCs issued 
by such non-U.S. institutions to no more than 50% of a clearing 
member's total margin deposit at any given time, and no more than 20% 
of a clearing member's margin deposit may include an LC issued by any 
one of these non-U.S. institutions.\4\
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    \3\ These concentration limits, however, are not currently 
applied to LCs issued by non-U.S. institutions that qualify as 
financial holding companies under Regulation Y or have an affiliate 
that is so qualified. In order to be deemed a financial holding 
company under Regulation Y, among other things, the institution must 
make certain certifications regarding the capitalization of the 
depository institutions controlled by the holding company. See OCC 
Rule 604, Interpretation and Policy .02. See also Securities 
Exchange Act Release No. 5037 (November 6, 2001), 66 FR 57143 
(November 14, 2001) (SR-OCC-2001-03).
    \4\ Id.
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    OCC's Risk Committee recently requested a review of those aspects 
of OCC's risk management framework that are designed to mitigate the 
risks associated with accepting LCs for margin purposes, including the 
risk that an issuer of an LC will not honor its commitment to effect 
timely payment following an OCC demand therefor.\5\ Such review 
identified two instances in which over 50% of a clearing member's total 
margin on deposit was satisfied by LCs. OCC's Risk Committee determined 
this level of exposure to LCs to be excessive. Therefore, OCC proposes 
to make the existing concentration limits related to the deposit of 
LCs, as set forth in OCC Rule 604, Interpretation and Policy .02, 
applicable to all margin deposits of LCs regardless of issuer. As a 
result of this change, no more than 50% of a clearing member's margin 
on deposit may include LCs and no more than 20% of a clearing member's 
margin may include an LC from a single issuer. This proposed change is 
intended to reduce OCC's overall credit risk exposure to LCs deposited 
as margin by a single clearing member and the potential adverse 
consequences should an LC issuer not perform upon its payment 
commitment after receiving a demand for payment.
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    \5\ Pursuant to the terms of the LCs accepted by OCC as well as 
OCC's Rules, issuers of LCs are required to satisfy any demand for 
payment within sixty minutes after receipt of such demand. See OCC 
Rule 604(c)(1).
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    OCC believes that the proposed change will have a minimal impact on 
its clearing members because LCs comprise less than one percent of 
OCC's total margin deposits and are currently used by only 13 clearing 
members. OCC estimates that the proposed change will impact three 
clearing members and .13% of OCC's total margin deposits. Each of these 
three clearing members has been advised of the proposed change and has 
indicated that it will be able to modify its margin deposit practices 
to reduce its LC deposits without undue difficulty. Moreover, OCC is 
not proposing to modify any of its other rules, policies or procedures 
concerning LCs.
    Prior to implementation of this proposed rule change, OCC will 
publish an information memorandum to inform all clearing members of the 
proposed rule change. In addition, clearing members that are directly 
affected by the proposed rule change have been contacted regarding this 
filing and all clearing members (even if not directly affected by this 
proposal) will have access to information, as necessary, to better 
understand any potential impact the proposed rule change may have on 
their margin deposits at OCC.
2. Statutory Basis
    OCC believes that the proposed rule change is consistent with 
Section 17A(b)(3)(F) of the Act \6\ because it will assure the 
safeguarding of securities and funds which are in the custody and 
control of OCC. In addition, the proposed rule change will promote the 
prompt and accurate clearance and settlement of securities transactions 
for which it is responsible. OCC believes that the proposed changes to 
its existing concentration limit policy for LCs, as described above, 
will reduce certain credit risks associated with the deposit by a 
clearing member of LCs as a form of margin asset and make it less 
likely that such margin asset would not be available to OCC should OCC 
need to use it to close-out positions of a defaulted clearing member. 
For the same reasons, the proposed rule change will promote confidence 
that OCC will be able to timely meet its settlement obligations because 
the changes to OCC's concentration limit policy for LCs will reduce the 
likelihood that a percentage of a defaulting clearing member's margin 
assets would not be available to OCC in the event of a clearing member 
default. The proposed rule change is not inconsistent with any rules of 
OCC, including any other rules proposed to be amended.
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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(B) Clearing Agency's Statement on Burden on Competition

    OCC believes that the proposed rule change would impose a minimal 
burden on competition, and that such burden is appropriate in 
furtherance of the purposes of the Act.\7\ As stated above, this 
proposed rule change affects certain clearing members who deposit LCs 
as a form of margin asset at OCC because they would be required to 
modify their business practices and potentially incur certain costs in 
doing so. However, OCC believes that any burden imposed upon such 
clearing members is necessary in furtherance of the purposes of the Act 
and is minimal in nature. The proposed rule change will reduce OCC's 
credit exposure to those clearing members who deposit LCs as a form of 
margin asset thereby better ensuring that OCC safeguards the securities 
and funds in OCC's custody and control as well as promoting the prompt 
and accurate clearance and settlement of securities transactions for 
which OCC is responsible. In addition, OCC believes that the proposed 
rule change will have a minimal impact on its clearing members. LCs 
comprise less than one percent of OCC's total margin deposits and OCC 
anticipates that the proposed rule change will impact three clearing 
members, each of which has indicated that it is able to comply with the 
change without undue difficulty. Moreover, clearing members are able to 
deposit a large variety of asset types to satisfy their margin 
requirement at OCC including, but not limited to, common stocks, 
government securities and money market funds.
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    \7\ 15 U.S.C. 78q-1(b)(3)(I).
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    For the foregoing reasons, OCC believes that the proposed rule 
change imposes a minimal burden on competition, but such burden is 
appropriate in furtherance of the purposes of the Act.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants or Others

    Written comments on the proposed rule change were not and are not

[[Page 32803]]

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

    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 email to rule-comments@sec.gov. Please include 
File Number SR-OCC-2014-12 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-OCC-2014-12. This file 
number should be included on the subject line if email 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 10:00 a.m. and 3:00 p.m. Copies of such filing also will be 
available for inspection and copying at the principal office of OCC and 
on OCC's Web site at http://theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_14_12.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-2014-12 
and should be submitted on or before June 27, 2014.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated Authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-13203 Filed 6-5-14; 8:45 am]
BILLING CODE 8011-01-P


