
[Federal Register Volume 82, Number 124 (Thursday, June 29, 2017)]
[Notices]
[Pages 29598-29602]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-13583]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81008; File No. SR-OCC-2017-015]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Concerning the U.S. Market Transition to a Shortened Settlement Cycle

June 23, 2017.
    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 June 9, 2017, 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. Items I and II 
have been prepared primarily by OCC. OCC filed the proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(4)(i) \4\ thereunder so that the proposal was effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(4)(i).
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    This proposed rule change by OCC concerns the amendment of OCC's 
By-Laws and Rules in connection with recent amendments adopted by the 
Commission to Rule 15c6-1(a) \5\ under the Act. The amendments to Rule 
15c6-1(a) \6\ shorten the standard settlement cycle for most broker-
dealer securities transactions from three business days after the trade 
date to two business days after the trade date.
---------------------------------------------------------------------------

    \5\ 17 CFR 240.15c6-1(a).
    \6\ Id.
---------------------------------------------------------------------------

    The proposed changes to OCC's By-Laws and Rules were included in 
Exhibits 5A and 5B of the filing, respectively.

[[Page 29599]]

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 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. All terms with initial capitalization that are not 
otherwise defined herein have the same meaning as set forth in the OCC 
By-Laws and Rules.\7\
---------------------------------------------------------------------------

    \7\ OCC's By-Laws and Rules can be found on OCC's public Web 
site: http://optionsclearing.com/about/publications/bylaws.jsp.
---------------------------------------------------------------------------

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

1. Purpose
    The purpose of the proposed rule change is to amend OCC's By-Laws 
and Rules in connection with recently adopted amendments to Commission 
Rule 15c6-1(a) to shorten the standard settlement cycle for most 
broker-dealer transactions regarding the purchase or sale of securities 
from three business days after the trade date (``T+3'') to two business 
days after the trade date (``T+2'').\8\ The compliance date regarding 
these amendments is September 5, 2017.\9\
---------------------------------------------------------------------------

    \8\ Securities Exchange Act Release No. 80295 (March 22, 2017), 
82 FR 15564 (March 29, 2017).
    \9\ Id.
---------------------------------------------------------------------------

Background
    Commission Rule 15c6-1 establishes a standard settlement cycle for 
most purchases or sales of securities by broker-dealers. The Commission 
adopted Rule 15c6-1(a) \10\ in 1993 to establish T+3 as the standard 
trade settlement cycle (instead of five business days after the trade 
date), and it became effective in June of 1995.\11\ In March of 1995, 
the Commission approved changes to OCC's Rules that were proposed to 
ensure consistency with the new T+3 standard settlement cycle.\12\
---------------------------------------------------------------------------

    \10\ 17 CFR 240.15c6-1(a). Rule 15c6-1(a) provides, in relevant 
part, that ``a broker or dealer shall not effect or enter into a 
contract for the purchase or sale of a security (other than an 
exempted security, government security, municipal security, 
commercial paper, bankers' acceptances, or commercial bills) that 
provides for payment of funds and delivery of securities later than 
the third business day after the date of the contract unless 
otherwise expressly agreed to by the parties at the time of the 
transaction.''
    \11\ Securities Exchange Act Release Nos. 33023 (October 6, 
1993), 58 FR 52891 (final rule adopting Rule 15c6-1); 34952 
(November 9, 1994), 59 FR 59137 (changing the effective date of the 
final rule from June 1, 1995 to June 7, 1995).
    \12\ Securities Exchange Act Release No. 35552 (March 30, 1995), 
60 FR 17600 (April 6, 1995) (SR-OCC-94-11).
---------------------------------------------------------------------------

    Since the change to T+3, the Commission and the financial services 
industry have continued to explore the idea of shortening the 
settlement cycle even further.\13\ In April 2014, DTCC published a 
recommendation to shorten the standard U.S. trade settlement cycle to 
T+2 and announced that it would partner with market participants and 
industry organizations to devise the necessary approach and timelines 
to achieve T+2.\14\ To improve the efficiency of the U.S. settlement 
system by reducing the attendant risks in the T+3 settlement of 
securities transactions, and to align U.S. markets with the standard 
settlement cycles in other major global markets that have already moved 
to T+2, DTCC, in collaboration with the financial services industry, 
formed an Industry Steering Committee (``ISC'') and an industry working 
group and sub-working groups to facilitate the move to T+2.\15\ In June 
of 2015, the ISC published a White Paper outlining the activities and 
proposed timeframes that would be required to move to T+2 in the 
U.S.\16\ Concurrently, SIFMA and the ICI jointly submitted a letter to 
Commission Chair White expressing support of the financial service 
industry's efforts to shorten the settlement cycle and identified 
amendments to Rule 15c6-1(a) that they believed would be necessary for 
an effective transition to T+2.\17\ In March 2016, the ISC announced an 
industry target date of September 5, 2017, for the transition to 
T+2.\18\
---------------------------------------------------------------------------

    \13\ See e.g., Securities Industry Association, ``SIA T+1 
Business Case Final Report'' (July 2000); Securities Exchange Act 
Release No. 49405 (March 11, 2004), 69 FR 12922 (March 18, 2004) 
(Concept Release: Securities Transactions Settlement); The 
Depository Trust & Clearing Corporation (``DTCC''), ``Proposal to 
Launch a New Cost-Benefit Analysis on Shortening the Settlement 
Cycle'' (December 2011).
    \14\ See DTCC, ``DTCC Recommends Shortening the U.S. Trade 
Settlement Cycle'' (April 2014).
    \15\ The ISC includes, among other participants, DTCC, the 
Securities Industry and Financial Markets Association (``SIFMA'') 
and the Investment Company Institute (``ICI'').
    \16\ See ``Shortening the Settlement Cycle: The Move to T+2'' 
(June 18, 2015).
    \17\ See Letter from ICI and SIFMA to Mary Jo White, Chair, SEC, 
dated June 18, 2015; see also Letter from Mary Jo White, Chair to 
Kenneth E. Bentsen, Jr. President and CEO, SIFMA, and Paul Schott 
Stevens, President and CEO, ICI, dated September 16, 2015 
(expressing support for industry efforts to shorten the trade 
settlement cycle to T+2 and indicating a commitment to developing a 
proposal to amend Rule 15c6-1(a) to require standard settlement no 
later than T+2).
    \18\ See ISC Media Alert: ``US T+2 ISC Recommends Move to 
Shorter Settlement Cycle On September 5, 2017'' (March 7, 2016).
---------------------------------------------------------------------------

    On September 28, 2016, the Commission proposed amendments to Rule 
15c6-1(a) to shorten the standard settlement cycle to T+2 on the basis 
that the shorter settlement cycle would reduce the risks that arise 
from the value and number of unsettled securities transactions prior to 
completion of settlement, including credit, market and liquidity risks 
faced by U.S. market participants.\19\ On March 22, the Commission 
adopted the amendments to Rule 15c6-1(a) as proposed.\20\ In light of 
this action by the SEC, OCC is proposing amendments to its By-Laws and 
Rules in connection with the T+2 settlement cycle and to do so by the 
Commission's designated compliance date of September 5, 2017.
---------------------------------------------------------------------------

    \19\ Securities Exchange Act Release No. 78962 (September 28, 
2016), 81 FR 69240 (October 5, 2016); see also Commission Press 
Release 2016-200: ``SEC Proposes Rule Amendment to Expedite Process 
for Settling Securities Transactions'' (September 28, 2016).
    \20\ Securities Exchange Act Release No. 80295, supra note 8.
---------------------------------------------------------------------------

Proposed Changes to OCC By-Laws and Rules
    OCC is proposing changes to the following By-Laws and Rules in 
connection with the recently-amended Rule 15c6-1(a) and the particular 
changes are discussed in more detail below:
     OCC Rule 901 (Settlement Through Correspondent Clearing 
Corporations); \21\
---------------------------------------------------------------------------

    \21\ Article I, Section 1.C.(33) of OCC's By-Laws defines the 
term ``correspondent clearing corporation'' to mean National 
Securities Clearing Corporation (``NSCC'') or any successor thereto 
which, ``by agreement with [OCC], provides facilities for 
settlements in respect of exercised option contracts or BOUNDs or in 
respect of delivery obligations arising from physically-settled 
stock futures.''
---------------------------------------------------------------------------

     OCC Rule 903 (Obligation to Deliver);
     OCC Rule 1302 (Delivery of Underlying Securities);
     OCC Rule 1503 (Exercise Settlement Date for Event Options 
and Range Options);
     Article XXI of OCC's By-Laws (Stock Loan/Hedge Program);
     OCC Rule 2208 (Settlement Date);
     OCC Rule 2209A (Termination of Market Loans); and
     OCC Rule 2502 (Settlement Date for BOUNDs).
    First, OCC proposes to amend certain of its Rules that govern 
settlement of physically-settled options and futures through NSCC. 
Chapter IX of OCC's

[[Page 29600]]

Rules addresses delivery and payment obligations arising out of the 
exercise of physically-settled stock option contracts and the maturity 
of physically-settled stock futures contracts. Rule 901 requires that 
certain obligations be settled through the facilities of NSCC. Rule 
901(d) permits OCC to revoke a specification in any Delivery Advice 
that settlement be made through the facilities of NSCC at any time 
prior to the opening of business on the delivery date by an appropriate 
notice to the Receiving and Delivering Clearing Members.\22\ In 
particular, Rule 901(d) allows specified OCC senior officers to extend 
or postpone the time for delivery to no more than three business days 
after the date that OCC revokes such a settlement specification. OCC 
proposes to amend this provision to make such an extension or 
postponement consistent with the new T+2 settlement cycle. Accordingly, 
under the proposed rule change, the amount of time that OCC has to 
extend or postpone the time of delivery would be changed to two 
business days.
---------------------------------------------------------------------------

    \22\ OCC recently proposed changes to existing Rule 901(d) in 
connection with advance notice and proposed rule change filings 
related to a new Stock Options and Futures Settlement Agreement 
between OCC and the National Securities Clearing Corporation. See 
SR-OCC-2017-013 and SR-OCC-2017-804. The proposed changes to Rule 
901(d) currently pending Commission review in SR-OCC-2017-013 and 
SR-OCC-2017-804 are indicated in Exhibit 5B with double underlined 
and double strikethrough text.
---------------------------------------------------------------------------

    Rule 903 governs the obligation of a Clearing Member to deliver 
when either a Delivery Advice or OCC directs that settlement be made on 
a broker-to-broker basis. It currently specifies the delivery date for 
physically-settled options as the third business day following the day 
on which the exercise notice was, or is deemed to have been, properly 
tendered to OCC. Rule 903 also generally specifies the delivery date 
for physically settled security futures as the third business day 
following the maturity date. Under the proposed rule change, these 
references in Rule 903 to the ``third'' business day would be changed 
to the ``second'' business day.
    Second, OCC proposes to amend Rule 1302 concerning the delivery of 
underlying securities for physically-settled stock futures. With 
certain exceptions, Rule 1302 currently provides that the delivery date 
for a physically-settled stock future is the third business day 
following the maturity date of the applicable series. Under the 
proposed rule change, the reference to the ``third'' business day would 
be changed to ``second'' business day.
    Third, OCC proposes to amend Rule 1503 concerning the exercise 
settlement date for credit default options and credit default basket 
options. With certain exceptions, Rule 1503 currently provides that the 
exercise settlement date for a credit default option and credit default 
basket option is the third business day following the date on which the 
option is deemed to have been exercised. Under the proposed rule 
change, the reference to the ``third'' business day would be changed to 
``second'' business day.
    Fourth, OCC proposes to amend a provision of its By-Laws and 
certain Rules concerning its two Stock Loan Programs: The Hedge Program 
and Market Loan Program. In the Hedge Program, OCC acts as the 
guarantor for Stock Loans that are initiated bilaterally between 
Clearing Members through The Depository Trust Company (``DTC''). Under 
Article XXI, Section 2(c) of OCC's By-Laws, OCC may terminate 
outstanding Hedge Loans under certain conditions. If any Hedge Loans 
are so terminated by OCC, it is required to provide written notice 
thereof to all affected Hedge Clearing Members to specify the date on 
which such termination is to become effective, which shall be at least 
three stock loan business days after the date of such notice. OCC 
proposes to amend this provision to make the effective date of such a 
termination consistent with the new T+2 settlement cycle. OCC therefore 
proposes to amend Section 2(c) of Article XXI to change the minimum 
number of days between notice and termination from three to two.
    Rule 2208(a) currently provides the settlement date for the 
termination of a Hedge Loan shall be the earlier of: (1) The date on 
which the Borrowing Clearing Member initiates the termination or (2) 
the date that is three stock loan business days after the date on which 
the Lending Clearing Member initiates the termination. OCC proposes to 
amend Rule 2208(a) to change ``three'' stock loan business days to 
``two'' stock loan business days.
    In the Market Loan Program, OCC acts as the guarantor for Market 
Loans that are initiated through the matching of bids and offers that 
are either agreed upon by the Market Loan Clearing Members or matched 
anonymously through a Loan Market. Typically, a Market Loan is 
terminated through the process of a Market Loan Clearing Member 
providing notice to the Loan Market to call for the recall or return of 
a specified quantity of Loaned Stock. The Loan Market sends details of 
the matched return or recall transaction to OCC, and OCC validates the 
transaction and sends a pair of delivery orders to DTC for settlement 
in connection with the recall or return. Rule 2209A(a)(3) currently 
provides that if a recall transaction fails to settle by the Settlement 
Time on the third stock loan business day following the day that the 
transaction was first submitted, the Lending Clearing Member may choose 
to execute a buy-in of the Loaned Stock. OCC proposes to change the 
reference to ``third'' stock loan business day to ``second'' stock loan 
business day.
    Under Rule 2209A(d), OCC may terminate outstanding Market Loans 
under certain conditions. If any Market Loans are so terminated by OCC, 
it is required to provide written notice thereof to all affected Market 
Loan Clearing Members to specify the date on which such termination is 
to become effective, which shall be at least three stock loan business 
days after the date of such notice. OCC proposes to amend this 
provision to make the effective date of such a termination consistent 
with the new T+2 settlement cycle. OCC therefore proposes to amend Rule 
2209A(d) to change the minimum number of days between notice and 
termination from three to two.
    Fifth, OCC proposes to amend Rule 2502 concerning the settlement 
date for BOUNDs in Chapter XXV of OCC's Rules. Rule 2502 currently 
provides the settlement date for a BOUND is the third business day 
following the expiration date. Under the proposed rule change, the 
settlement would be changed to the second business day following the 
expiration date.
Implementation
    OCC would implement the proposed rule change in coordination with 
the Commission's September 5, 2017, compliance date for the amendments 
to Rule 15c6-1(a) and the transition to T+2 and would provide advance 
notice to Clearing Members of the implementation through an Information 
Memo. OCC will include a footnote in its By-Laws and Rules with each 
rule that will change under this proposed rule change noting that each 
such rule will be updated on September 5, 2017, to reflect the 
transition to the new T+2 settlement cycle. As part of that footnote, 
OCC will also include a link to documents on OCC's public Web site that 
show the updates to OCC's rules that are being made in this proposed 
rule change. OCC intends for these updates to be self-executing on 
September 5, 2017.

[[Page 29601]]

2. Statutory Basis
    OCC believes that the proposed rule change is consistent with 
Section 17A(b)(3)(F) of the Act \23\ and the rules thereunder 
applicable to OCC. Section 17A(b)(3)(F) requires, among other things, 
that rules of a clearing agency be designed ``to foster cooperation and 
coordination with persons engaged in the clearance and settlement of 
securities transactions, to remove impediments to and perfect the 
mechanism of a national system for the prompt and accurate clearance 
and settlement of securities transactions, and, in general, to protect 
investors and the public interest[.]'' \24\ OCC believes the proposed 
rule change is consistent with these requirements because it would 
coordinate the terms of certain OCC rules with the Commission's 
amendments to Rule 15c6-1(a) to support a T+2 standardized settlement 
cycle. Specifically, where a current OCC By-Law or Rule is based upon 
or otherwise references the T+3 standardized securities settlement 
cycle, the provision would be changed to support T+2. Harmonizing OCC's 
By-Laws and Rules with the new T+2 standardized settlement cycle would 
also remove impediments to and perfect the mechanism of a national 
system for the prompt and accurate clearance and settlement of 
securities transactions by, for example, ensuring that OCC's By-laws 
and Rules that are related to T+2 are consistent with the rules 
concerning the standardized settlement cycle that are maintained by the 
exchanges for which OCC clears and settles transactions and the rules 
of clearing agencies, such as NSCC and DTC, that provide clearance and 
settlement services for securities transactions that underlie 
physically-settled stock option and physically-settled stock future 
contracts cleared by OCC. OCC believes that conforming certain of its 
By-Laws and Rules to the Commission's new standardized settlement cycle 
would also protect investors and the public interest by ensuring that 
OCC provides clearance and settlement services in a manner that 
supports the Commission's requirements for the T+2 standardized 
settlement cycle.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78q-1(b)(3)(F).
    \24\ Id.
---------------------------------------------------------------------------

    OCC believes the proposed changes are also consistent with the 
requirements in Commission Rule 17Ad-22(e)(1).\25\ The changes are 
designed to modify OCC's By-Laws and Rules that would otherwise become 
outdated upon the change to the T+2 standardized settlement cycle. 
Therefore, OCC believes that the proposed changes promote compliance 
and consistency with the requirements in Rule 17Ad-22(e)(1) to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to provide for a well-founded, clear, 
transparent and enforceable legal basis. Maintaining provisions in 
OCC's publicly available By-Laws and Rules that are consistent at all 
times with the standardized settlement cycle that is specified in 
Commission Rule 15c6-1(a) helps ensure that OCC's By-Laws and Rules 
remain well-founded, clear, transparent and enforceable.
---------------------------------------------------------------------------

    \25\ 17 CFR 240.17Ad-22(e)(1).
---------------------------------------------------------------------------

    The proposed rule change is not inconsistent with the existing 
rules of OCC, including any other rules proposed to be amended.

(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Act requires that the rules of a 
clearing agency not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\26\ OCC does not 
believe that the proposed rule change would impose any burden or have 
any impact on competition. The proposed rule change would implement 
conforming changes within OCC's By-Laws and Rules to ensure consistency 
with amendments recently adopted by the Commission in Rule 15c6-1(a) to 
change the standard securities settlement cycle to T+2. All Clearing 
Members would be equally subject to these conforming changes, and the 
proposed changes would not provide any Clearing Member with a 
competitive advantage over any other Clearing Member. This proposed 
rule change would also not inhibit access to OCC's services or 
disadvantage or favor any particular user in relationship to another. 
As a result, OCC believes the proposed rule change would not impact or 
impose a burden on competition.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

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

    Written comments were not and are not 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(iii) of the Act \27\ and paragraph (f)(4)(i) of Rule 19b-4 
\28\ thereunder. At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.\29\
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \28\ 17 CFR 240.19b-4(f)(4)(i).
    \29\ Notwithstanding its immediate effectiveness, implementation 
of this rule change will be delayed until this change is deemed 
certified under CFTC Regulation Sec.  40.6.
---------------------------------------------------------------------------

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 Commission's 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-2017-015 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-2017-015. 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

[[Page 29602]]

Reference Room, 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://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_17_015.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-2017-015 and 
should be submitted on or before July 20, 2017.
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-13583 Filed 6-28-17; 8:45 am]
 BILLING CODE 8011-01-P


