
[Federal Register Volume 79, Number 137 (Thursday, July 17, 2014)]
[Notices]
[Pages 41709-41710]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-16786]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72597; File No. SR-OCC-2014-12]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Order Approving Proposed Rule Change To Make Its Existing Policy 
Concerning Specified Concentration Limits Related to Deposits of 
Certain Letters of Credit Applicable to All Letters of Credit

July 11, 2014.

I. Introduction

    On May 20, 2014, the Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change SR-OCC-2014-12 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published for comment in 
the Federal Register on June 6, 2014.\3\ The Commission received no 
comment letters in response to the proposed rule change. For the 
reasons discussed below, the Commission is approving the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 72294 (June 2, 2014), 79 
FR 32801 (June 6, 23, 2014) (SR-OCC-2014-12).
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II. Description

    OCC proposed to amend OCC Rule 604 in order to make its existing 
policy concerning specified concentration limits related to deposits of 
certain letters of credit (``LC'') applicable to all letters of credit. 
Currently, OCC imposes concentration limits on clearing member margin 
deposits of LCs issued by certain non-U.S. institutions.\4\ 
Specifically, OCC limits 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

[[Page 41710]]

deposit may include an LC issued by any one of these non-U.S. 
institutions.\5\
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    \4\ These concentration limits, however, are not currently 
applied to LCs issued by non-U.S. institutions that qualify as 
financial holding companies under Federal Reserve Board of Governors 
Regulation Y or have an affiliate that is so qualified. See 17 CFR 
225. 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).
    \5\ Id.
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    Pursuant to review and analysis performed by OCC's Risk Committee, 
OCC is applying 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 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.
    OCC believes that the rule 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 proposal will impact three clearing 
members and .13% of OCC's total margin deposits. Each of these three 
clearing members has been advised by OCC of the proposed change and OCC 
stated that all of the affected clearing members have indicated that 
they will be able to modify its margin deposit practices to reduce its 
LC deposits without undue difficulty.
    OCC has indicated that prior to implementation of this rule change 
it will publish an information memorandum to inform all clearing 
members of the rule change. In addition, OCC stated that it contacted 
clearing members with LCs on deposit that are directly affected by the 
filing and all clearing members 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.

III. Discussion

    Section 19(b)(2)(C) of the Act \6\ directs the Commission to 
approve a self-regulatory organization's proposed rule change if the 
Commission finds that such proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to such organization. Section 17A(b)(3)(F) of the Act \7\ 
requires, among other things, that the rules of a clearing agency are 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions and to the extent applicable derivative 
agreements, contracts and transactions, and to assure the safeguarding 
of securities and funds which are in the custody or control of the 
clearing agency or for which it is responsible.
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    \6\ 15 U.S.C. 78s(b)(2)(C).
    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission finds that the proposed rule change to enhance 
concentration limits related to deposits of LC and making those limits 
applicable to all LC is consistent with Section 17A(b)(3)(F) of the 
Act.\8\ The Commission believes the limitations on the concentration of 
LC as margin deposits generally and the concentration of LCs by a 
particular issuer should reduce the credit risk and settlement risk to 
OCC associated with LCs as margin deposits by reducing the risk that an 
LC issuer would not be able to provide funds to OCC to close out a 
defaulting clearing member's positions. By reducing the risk that OCC 
will not be able to use the deposited LC in the event of a clearing 
member default, the limitations promote the prompt and accurate 
clearance and settlement of securities transactions and other 
transactions by OCC and help OCC assure the safeguarding of securities 
and funds which are in its custody or control or for which it is 
responsible.\9\
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    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ See id.
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IV. Conclusion

    On the basis of the foregoing, the Commission concludes that the 
proposal is consistent with the requirements of the Act, particularly 
the requirements of Section 17A of the Act,\10\ and the rules and 
regulations thereunder.
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    \10\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (File No. SR-OCC-2014-12) be and 
hereby is APPROVED.\12\
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    \11\ 15 U.S.C. 78s(b)(2).
    \12\ 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.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-16786 Filed 7-16-14; 8:45 am]
BILLING CODE 8011-01-P


