[Federal Register Volume 65, Number 112 (Friday, June 9, 2000)]
[Notices]
[Pages 36750-36751]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-14595]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42897; File No. SR-OCC-99-9]
Self-Regulatory Organizations; The Options Clearing Corporation;
Order Approving a Proposed Rule Change To Merge the Equity and Non-
Equity Elements of OCC's Clearing Fund
June 5, 2000.
On September 24, 1999, The Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange Commission (``Commission'') a
proposed rule change (File No. SR-OCC-99-9) pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act''). \1\ Notice
of the proposal was published in the Federal Register on December 8,
1999. \2\ No comment letters were received. 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\ Securities Exchange Act Release No. 42195 (December 1,
1999), 64 FR 68712.
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I. Description
Under the rule change, OCC will merge the equity and non-equity
elements of its clearing fund into combined clearing fund. A member's
contribution to the combined clearing fund will be based on the
member's total margin requirements, with a minimum contribution of
$150,000.\3\
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\3\ According to OCC, almost all clearing members already
contribute to both the equity and non-equity elements of the
clearing fund and thus are subject to the $75,000 minimum
contribution for each element. For those members, a merger of the
two elements into one combined clearing fund will clause no
aggregate change in the size of their clearing fund contribution.
Five clearing members clear either only equity or only non-equity
products and therefore contribute to only one element of the
clearing fund. Three of these five members, however, will not have
their contributions affected by the proposed $150,000 minimum. Thus,
the merger of the two elements into one clearing fund will not
materially change the overall size of the clearing fund and will not
have a minor impact on a small number of members.
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In 1982, when OCC first began clearing non-equity products,
including treasury, currency, and stock index options, OCC instituted a
separate non-equity element to the clearing fund to limit the impact of
a member default in one product base (i.e., either equity or non-
equity) on members trading only the other product base. The element of
the clearing fund applicable to the product(s) involved in the default
would be utilized first; only after that element was exhausted would
the other element be used. Beginning in 1986, with the introduction of
the Theoretical Intermarket Margin System (``TIMS'') for non-equity
products, some margin offsets were allowed between equity and non-
equity products. Such offsets further expanded following the
implementation of TIMS for equity products in 1991. The blurring of the
distinction between equity and non-equity margin requirements and the
integration of OCC's equity and non-equity systems in general has
reached a level such that clearing members only receive a single margin
requirement each day. OCC computes distinct equity and non-equity
margin requirements only on a monthly basis for the purpose of
determining the size of each element of the clearing fund.
Consistent with Article VIII, Section 2 of OCC's Bylaws, OCC will
issue a memorandum to its clearing members at least five business days
prior to the effective date of the rule change advising them of the
change in the minimum contribution and advising them of their ability
to withdraw from membership should they choose not to make the required
clearing fund contribution.
II. Discussion
Section 17A(b)(3)(F) \4\ of the Act requires that the rules of a
clearing agency be designed 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. The Commission finds that combing the two
clearing funds will have no effect on OCC's margining and risk
management procedures that protect OCC against a member default. As a
result, OCC will maintain its current level of protection while
enhancing the efficiency of its operations. Accordingly, the rule
change is consistent with OCC's obligation to safeguard securities and
funds which are in OCC's custody or control.
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\4\ 15 U.S.C. 78q-1(b)(3)(F).
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III. 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 and the
rules and regulations thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-OCC-99-9) be, and hereby is,
approved.
[[Page 36751]]
For the Commission by the Division of Market Regulation,
pursuant to delegated authority. \5\
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\5\ 17 C.F.R. 200.30-3(a)(12).
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Margaret H. McFarland
Deputy Secretary.
[FR Doc. 00-14595 Filed 6-8-00; 8:45 am]
BILLING CODE 8010-01-M