[Federal Register Volume 61, Number 39 (Tuesday, February 27, 1996)]
[Notices]
[Pages 7293-7295]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-4311]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36860; File No. SR-OCC-96-02]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Accelerated Approval of a Proposed Rule Change to
Modify the Stock Loan/Hedge Program to Accommodate Same-Day Funds
Settlement
February 20, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on January 16, 1996, The
Options Clearing Corporation (``OCC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change (File No.
SR-OCC-96-02) as described in Items I and II below, which items have
been prepared primarily by OCC. The Commission is publishing this
notice and order to solicit comments from interested persons and to
grant accelerated approval of the proposed rule change.
\1\ 15 U.S.C. 78s(b)(1) (1988).
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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 modify OCC's rules
relating to its Stock Loan/Hedge Program (``Hedge Program'') \2\ to
reflect the conversion of the equity securities processing operations
of The Depository Trust Company (``DTC'') to a same-day funds
settlement (``SDFS'') system.
\2\ For a description of OCC's Stock Loan/Hedge Program, refer
to Securities Exchange Act Release No. 32638 (July 15, 1993), 58 FR
39264 [File No. SR-OCC-92-34] (order granting permanent approval of
the Stock Loan/Hedge Program).
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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 that 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.\3\
\3\ The Commission has modified the text of the summaries
submitted 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 purpose of the proposed rule change is to make technical
modifications to OCC's rules governing its Hedge Program to accommodate
the conversion by DTC of its equity securities processing operations to
an SDFS system. DTC is scheduled to convert to an SDFS system on
February 22, 1996.
Stock loans under the Hedge Program are effected by a book-entry
transfer on the books of a correspondent depository (i.e., a securities
depository at which OCC has an account and which provides services to
OCC in connection with the Hedge Program). The Midwest Securities Trust
Company (``MSTC'') had acted as the only correspondent depository since
the Hedge Program was established. However, MSTC has withdrawn from the
securities depository business,\4\ and OCC has made arrangements for
DTC to act as a correspondent depository for the Hedge Program.
\4\ Securities Exchange Act Release No. 36684 (January 5, 1996),
61 FR 1195 (January 17, 1996) [File Nos. SR-CHX-95-27, SR-DTC-95-22,
SR-MCC-95-04, SR-MSTC-95-10, and SR-NSCC-95-15] (order approving
arrangements relating to a decision by the Chicago Stock Exchange,
Inc. to withdraw from the clearance and settlement, securities
depository, and branch receives business).
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Under OCC's rules governing the Hedge Program, after two
participating clearing members have agreed to the terms of a stock
loan, the lending clearing member transfers the stock that is the
subject of the loan by book-entry into OCC's account at a correspondent
depository. The lending clearing member's transfer instructions
identify the borrowing clearing member and specify the amount of cash
to be received as collateral by the lending clearing member. Once the
stock is delivered into OCC's account, OCC instructs the correspondent
depository to redeliver the stock to the account of the borrowing
clearing member against payment of the required collateral. The cash
payments also are effected through
[[Page 7294]]
the facilities of the correspondent depository.
It is essential to OCC's operation of the Hedge Program that OCC
must never have a position against a lending clearing member without an
offsetting position against a borrowing clearing member unless one of
the two clearing members defaults in its obligations with respect to a
stock loan. In order to assure that OCC never has a position against a
lending or a borrowing clearing member without an offsetting position
against another clearing member, OCC rule 2201, concerning the
initiation of stock loans, currently specifies that a transfer of stock
from a lending clearing member to OCC will not constitute a final entry
on the books of a correspondent depository until the related transfer
from OCC to the borrowing clearing member constitutes a final entry on
the books of the correspondent depository. Similarly, OCC rule 2208,
concerning the unwinding or settlement of stock loans, currently
specifies that a transfer of stock from a borrowing clearing member to
OCC will not constitute a final entry on the books of the correspondent
depository until the related transfer from OCC to the lending clearing
member constitutes a final entry on the books of the correspondent
depository. These rules were drafted to operate in conjunction with
MSTC's next-day funds settlement (``NDFS'') system as set forth in
MSTC's rules.
DTC's SDFS system rules are premised on the concept that any
securities transfers in DTC's system will become final at the time that
the funds relating to the securities transfer are transferred.
Accordingly, as a technical matter, DTC's SDFS system rules do not
accommodate the concept currently contained in OCC rules 2201 and 2208
that provide one transfer will become final only when another related
transfer becomes final. Therefore, the proposed rule change modifies
OCC rules 2201(c) and 2208(a). As amended, rule 2201 regarding the
initiation of stock loans provides that OCC may initiate an additional
transfer to return stock to a lending clearing member if for any reason
it appears to OCC that the related transfer from OCC to the borrowing
clearing member will not become final on the books of the correspondent
depository on the same day as the transfer from the lending clearing
member to OCC. Correspondingly, amended rule 2208 regarding settlement
of stock loans (i.e., the return of a stock loan) now provides that OCC
may initiate an additional transfer to return loaned stock to a
borrowing clearing member if for any reason it appears to OCC that the
related transfer from OCC to the lending clearing member will not
become final on the books of the correspondent depository on the same
day as the transfer from the borrowing clearing member to OCC. The two
rules as modified are compatible with DTC's SDFS system while still
preserving OCC's ability to assure that in the ordinary course at the
end of each day it will have an offsetting borrow position for each
loan position and an offsetting loan position for each borrow position.
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 proposal will conform OCC's rules to DTC's rules
thereby improving the linkage and coordination between two clearing
agencies.
(B) Self-Regulatory Organization's Statement on Burden on Competition
OCC does not believe that the proposed rule change would impose any
burden on competition.
(C) Self-Regulatory Organization'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
Section 17A(b)(3)(F) of the Act \5\ requires that the rules of a
clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions, 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, and to
foster cooperation and coordination with persons engaged in the
clearance and settlement of securities transactions. The Commission
believes that OCC's proposed procedures relating to its Hedge Program
are consistent with OCC's obligations under Section 17A(b)(3)(F) for
the reasons discussed below.
\5\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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The Commission believes that the proposed rule change is consistent
with OCC's obligations under Section 17A(b)(3)(F) to promote the prompt
and accurate clearance and settlement of securities transactions
because the proposal modifies OCC's Hedge Program to enable it to
operate in a SDFS environment at DTC thus allowing the continued use of
book-entry movements of stock loans. The Commission also believes OCC's
proposed procedures should help to assure the safeguarding of
securities and funds which are in the custody or control of OCC or for
which OCC is responsible because OCC's amended rules will provide OCC
with the authority to make an additional stock loan transfer if it
appears the related transfer will not become final on the books of the
correspondent depository on the same day. These rules should help to
assure that absent a clearing member default OCC will never have a
position against a borrowing or lending clearing member without an
offsetting position against another clearing member.
Additionally, the Commission believes the proposed rule change
should foster cooperation and coordination between OCC and DTC because
the modification of OCC's Hedge Program procedures conform OCC's rules
to DTC's rules regarding the finality of securities transactions and
facilitates OCC's use of DTC as a Correspondent depository in its Hedge
Program.
OCC has requested that the Commission find good cause for approving
the proposed rule change prior to the thirtieth day after the date of
publication of notice of filing. The Commission finds good cause for so
approving the proposed rule change because accelerated approval of the
proposed modifications will allow OCC to continue to utilize DTC as a
correspondent depository in its Hedge Program following the conversion
to SDFS on February 22, 1996. Therefore, OCC participants will be able
to continue to utilize the Hedge Program without any disruption.
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, N.W., Washington, D.C. 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
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available for inspection and copying in the Commission's Public
Reference Room, 450 Fifth Street, N.W., Washington, D.C. 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-96-02 and should be submitted by March 19, 1996.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-OCC-96-02) be, and hereby
is, approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\6\
\6\ 17 CFR 200.30-3(a)(12) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-4311 Filed 2-26-96; 8:45 am]
BILLING CODE 8010-01-M
