[Federal Register Volume 60, Number 237 (Monday, December 11, 1995)]
[Notices]
[Pages 63558-63559]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30070]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36551; File No. SR-OCC-95-12]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of a Proposed Rule Change Amending the Agreements
Governing Non-Proprietary Cross-Margining Accounts of Market
Professionals in the Cross-Margining Program Among The Options Clearing
Corporation (``OCC''), the Intermarket Clearing Corporation (``ICC''),
and the Chicago Mercantile Exchange, in the Cross-Margining Program
Between OCC and ICC, and in the Cross-Margining Program Between OCC and
the Kansas City Board of Trade Clearing Corporation
December 4, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on August 15, 1995, The
Options Clearing Corporation (``OCC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change (File No.
SR-OCC-95-12) as described in Items I, II, and III below, which items
have been prepared primarily by OCC. On September 12, 1995, and on
October 11, 1995, OCC filed amendments to the proposed rule change to
include in addition to proposed changes to the agreements governing
non-proprietary cross-margining (``XM'') accounts in the XM program
between OCC, The Intermarket Clearing Corporation (``ICC''), and the
Chicago Mercantile Exchange (``CME''), proposed changes to the
agreements governing non-proprietary XM accounts in the XM program
between OCC and ICC and in the XM program between OCC and the Kansas
City Board of Trade Clearing Corporation (``KCC''), respectively.\2\
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
\1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
\2\ Letters from Jean M. Cawley, OCC, to Jerry W. Carpenter,
Assistant Director, Division of Market Regulation, Commission
(September 11, 1995, and October 10, 1995).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The purpose of the proposed rule change is to amend the agreements
governing non-proprietary XM accounts of market professionals in the
OCC/ICC/CME XM program, in the OCC/ICC XM program, and in the OCC/KCC
XM program in order to implement the revised distributional scheme
adopted by the Commodity Futures Trading Commission (``CFTC'') in the
new appendix to the CFTC's bankruptcy rules.\3\ The proposed rule
change also seeks to revise the terms of the agreements government the
proprietary and non-proprietary XM accounts in the OCC/KCC XM program
to conform the terms of those agreements to the terms currently used in
the forms of agreements in the OCC/ICC/CME XM program and in the OCC/
ICC XM program.
\3\ The CFTC's distributional requirements are set forth in
Appendix B to Part 190 of the CFTC's General Regulations. 17 CFR
190. The CFTC's distributional framework was adopted in April 1994.
59 FR 17468 (April 13, 1994).
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II. Self-Regulatory Organization'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 such
statements.\4\
\4\ The Commission has modified the text of the summaries
prepared by OCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The proposed rule change seeks to amend the agreements governing
non-proprietary XM accounts of market professionals to correspond with
the requirements of the distributional scheme adopted by the CFTC as a
new appendix to its bankruptcy rules. The proposed rule change also
seeks to conform the terms of the agreements governing the proprietary
and non-proprietary XM accounts in the OCC/KCC XM program to make the
terms of those agreements substantially identical to the terms
currently used in the forms of agreements in the OCC/ICC/CME XM program
and the OCC/ICC XM program.
In November 1991, the Commission and the CFTC approved non-
proprietary cross-margining.\5\ As part of the CFTC's approval, it
required each futures commission merchant (``FCM'') participating in
cross-margining to agree that all funds and property in a non-
proprietary XM account would be treated as customer property subject to
the segregation requirements of the Commodity Exchange Act \6\ and to
segregate such fund and property from that of non-XM customers. In
addition, the CFTC required each market professional to subordinate its
XM related claims to customer claims based on non-XM positions.
\5\ Securities Exchange Act Release Nos. 29991 (November 26,
1991), 56 FR 61458 (order approving OCC/CME non-proprietary XM
program); 56 FR 61404 (Comm. F. T. Comm'n 1991) (order approving
OCC/CME non-proprietary XM program); 30041 (December 5, 1991) 56 FR
64824 [File Nos. SR-OCC-90-04 and SR-ICC 90-03] (order approving
OCC/ICC non-proprietary, market professional cross-margin program);
and 56 FR 61406 (Comm. F. T. Comm'n 1991) (order approving OCC/ICC
non-proprietary cross-margin program). In August 1993, the
Commission approved expansion of the OCC/KCC XM program established
in February of 1992 to include non-proprietary positions. Securities
Exchange Act Release No. 32708 (August 2, 1993), 58 FR 42586 [File
No. SR-OCC-93-13] (order approving OCC/KCC non-proprietary XM
program).
\6\ 7 U.S.C. Sec. 6d(2) (1988) and 17 CFR 1.20 (1991).
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Pursuant to that subordination requirement, if a clearing member
became insolvent, all non-XM customers of the FCM would be paid their
pro-rata share of the combined segregated funds pool, including funds
of XM market professionals, before the XM market professionals received
any portion of their claims. The subordination was intended to insulate
non-XM customers from losses arising from XM accounts. The
subordination also ensured that the XM accounts of market professional
would not be treated as accounts of securities customers subject to
liquidation under the Securities Investors Protection Act of 1970 \7\
or the stock broker liquidation provisions of the Bankruptcy Code.\8\
Therefore, the accounts could be liquidated as accounts of commodity
customers under the commodity broker liquidation provisions of the
Bankruptcy Code \9\ and the CFTC's bankruptcy rules,\10\ and both the
[[Page 63559]]
Commission's order and the CFTC's order approving non-proprietary XM
provide for such result.
\7\ 15 U.S.C. Secs. 78aaa-78lll (1988).
\8\ 11 U.S.C. Secs. 741-752 (1988).
\9\ 11 U.S.C. Secs. 761-766 (1988).
\10\ 17 CFR 190.01-190.10.
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The CFTC has adopted new rules that provide for a different
distributional framework for funds and property carried in a non-
proprietary XM account.\11\ The new revised rules continue the concept
of subordination for the purpose of ensuring that the market
professionals' securities included in a XM account will be subject to
commodity broker liquidation rules but modify the method for property
distribution in the event of the liquidation of the firm(s) carrying
the non-propriety XM account. Under the revised distributional scheme,
FCMs will continue to make separate calculations for non-XM customers
and XM market professionals, and funds deposited pursuant to those
calculations will continue to be separately maintained. However, in the
event of the failure of the firm(s) carrying the non-proprietary XM
accounts, the respective shortfalls, if any, of the pools of funds
would be determined as a percentage of the segregation requirement for
each pool.
\11\ Supra, note 3.
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In the event of (i) No shortfall in either pool, (ii) an equal
percentage of shortfall in both pools, (iii) a shortfall in the non-XM
pool only, or (iv) a greater percentage of shortfall in the non-XM pool
than in the XM pool, then the two pools of segregated funds would be
combined and non-XM customers and XM market professionals would share
pro rata in the combined pool. In the event of (i) a shortfall in the
XM pool only or (ii) a greater percentage shortfall in the XM pool than
in the non-XM pool, then the two pools of segregated funds would not be
combined. Instead, XM market professionals will share pro rata in the
pool of XM segregated funds while non-XM customers would share pro rata
in the pool of non-XM segregated funds.
In order to implement the new distributional requirements, the
clearing organizations operating non-proprietary XM programs must
submit amended agreements to the respective regulatory authorities
deleting the subordination requirement and substituting a reference to
the CFTC's distribution rules. Accordingly, OCC is proposing to make
those and other conforming changes \12\ to the agreements governing
non-proprietary XM accounts for the XM program among OCC, CME, and ICC,
the XM program between OCC and ICC, and the XM program between OCC and
KCC.\13\
\12\ The conforming changes include terms that ensure that non-
broker-dealer XM market professional will not be treated as
``customers'' for purposes of Rule 15c3-3 under the Act pursuant to
the conditions set forth in the Commission's no-action letter dated
July 31, 1995. Letter from Michael Macchiaroli, Associate Director,
Division of Market Regulation, Commission, to Jean Cawley, OCC (July
31, 1995).
\13\ In addition, pursuant to the amendment filed on October 11,
1995, OCC proposes to revise the agreements governing the
proprietary XM accounts in the OCC/KCC XM program to conform the
terms of those agreements to the terms used in the agreements used
in the OCC/ICC/CME and OCC/ICC XM programs.
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OCC believes the proposed rule change is consistent with the
requirements of Section 17A of the Act and the rules and regulations
thereunder because the rule proposal will facilitate the prompt and
accurate clearance and settlement of securities transactions and will
assure the safeguarding of securities and funds which are in the
custody or control of the clearing agency or for which it is
responsible.
(B) Self-Regulatory Organization's Statement on Burden on Competition
OCC does not believe that the proposed rule change will impact or
impose a burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
No written comments relating to the proposed rule change have been
solicited or received. OCC will notify the Commission of any written
comments received by OCC.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period (i) As the
Commission may designate up to ninety days of such date if it finds
such longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which OCC consents, the Commission will:
(a) By order approve such 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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
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. Sec. 552, will be available for inspection and copying in
the Commission's Public Reference Room, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of OCC. All submissions
should refer to the file number SR-OCC-95-12 and should be submitted by
January 2, 1996.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\14\
\14\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-30070 Filed 12-8-95; 8:45 am]
BILLING CODE 8010-01-M
