[Federal Register Volume 60, Number 69 (Tuesday, April 11, 1995)]
[Notices]
[Pages 18433-18435]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8870]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35567; File No. SR-OCC-95-02]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change Seeking to Make the Stock
Loan/Hedge Program Available to Market-Maker and Specialist Accounts
Established and Maintained by Clearing Members
April 5, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on February 13, 1995, The
Options Clearing Corporation (``OCC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change (File No.
SR-OCC-95-02) as described in Items I, II, and III below, which items
have been prepared primarily by OCC. 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) (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 make OCC's Stock
Loan/Hedge Program available to accounts established and maintained
with OCC by clearing members for market-makers and
specialists. [[Page 18434]]
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.
(A) Self Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The primary purpose of the proposed rule change is to make OCC's
Stock Loan/Hedge Program\2\ available to accounts established and
maintained with OCC by clearing members for market-makers and
specialists.\3\ Pursuant to OCC's By-Laws and Rules regarding its Stock
Loan/Hedge Program, clearing members are permitted to carry stock loan
and borrow positions in market-maker accounts.\4\ However, at the time
OCC proposed its Stock Loan/Hedge Program, OCC was concerned that its
Market-Maker Agreements\5\ did not adequately accommodate stock loans.
Accordingly, OCC appended an Interpretation to Article XXI, Section 5
of its By-Laws stating that OCC would not permit stock loan positions
and stock borrow positions to be maintained in a market-maker's or
specialist's account unless the market-maker or specialist had entered
into an account agreement authorizing stock loan positions and stock
borrow positions to be maintained in the account.\6\ In addition, OCC
stated in SR-OCC-92-34 that it intended to submit revised versions of
the various forms of Market-Maker Agreements to the Commission in a
separate proposed rule change in the near future.
\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).
\3\Market-makers and specialists are collectively referred to in
this Notice as ``market-makers,'' and accounts established and
maintained with OCC by clearing members for market-makers, including
separate market-maker's or specialist's accounts, combined market-
maker's or specialists' accounts, registered trader's accounts and
stock market-maker's or stock specialist's accounts (as described in
Article VI, Section 3 of OCC's By-Laws) are collectively referred to
in this Notice as ``market-maker accounts.''
\4\For examples of permitted stock loan and borrow positions,
refer to OCC By-Laws Article XXI, Section 5 stating that a stock
loan position may not be maintained in a market-maker account unless
the loaned stock to which the stock loan position relates is held
for the account of the market-maker; OCC Rule 601(c) setting out
margin requirements for market-maker accounts in which stock loan
and borrow positions are carried; and OCC Rules 2209 and 2210
describing the treatment of stock loan and borrow positions of a
suspended clearing member, including stock loan and borrow positions
carried in market-maker accounts.
\5\The term ``Market-Maker Agreements'' is used in this Notice
to refer collectively to the three forms of agreement for market-
maker accounts (i.e., separate market-maker's accounts, combined
market-maker's accounts, and joint accounts).
\6\Supra note 2.
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OCC has reviewed its current Market-Maker Agreement forms and
concluded that the current forms do adequately accommodate the Stock
Loan/Hedge Program. Section 1 of each Market-Maker Agreement causes the
market-maker and the clearing member to each agree that OCC has a lien
``on all long positions, securities, margin and other funds and assets
in the Account.'' OCC believes that stock loan and borrow positions are
``securities, margin and other funds and assets,'' and accordingly has
concluded that this language adequately establishes its rights with
respect to stock loan and borrow positions carried in market-maker
accounts.
In addition, OCC has concluded that Section 3 of its Market-Maker
Agreement causes market-makers signing the agreement to adequately
authorize the clearing member to lend assets (i.e., stock) in the
account and to adequately authorize OCC to rely on the terms on which
the assets are loaned.\7\ Therefore, OCC now believes that the
Interpretation to Article XXI, Section 5 of its By-Laws is unnecessary
and proposes to delete the Interpretation.
\7\A stock loan is not the result of an ``exchange transaction''
for purposes of OCC's rules because it does not arise from a
transaction on an exchange. OCC therefore was concerned that the
language of Section 1 of the Market-Maker Agreement did not
adequately accommodate stock loans because the language is limited
to exchange transactions of market-makers for whom an account is
established. However, a stock borrow or loan position is established
by a lending clearing member or borrowing clearing member not by a
market-maker. As defined in Article I, Section 1(S)(8), the term
``stock borrow position'' means the position of a borrowing clearing
member in respect of a stock loan. In addition, in Article I,
Section 1(S)(11), the term ``stock loan position'' means the
position of a lending clearing member in respect of a stock loan. A
borrowing clearing member does not need any authorization from a
market-maker in whose account it instructs OCC to carry a stock
borrow position because the position is entirely the responsibility
of the clearing member. Similarly, a stock loan position is entirely
the responsibility of the lending clearing member. However, because
a stock loan position in a market-maker account may arise only from
a clearing member's lending of stock held for the account of a
market-maker for whom the account is carried (see Article XXI,
Section 5(d) of OCC's By-Laws), a lending clearing member does need
authority from a market-maker's stock and OCC needs authority from
the market maker to permit the clearing member to lend a market-
maker to rely upon the terms of the loan. As described in the text,
OCC believes the current form of the Market-Maker Agreements cause
market-makers to provide this authority to both the clearing member
and OCC.
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OCC believes the proposed rule change is consistent with the
requirements of the Act, specifically 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.
(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 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. 552, will be [[Page 18435]] 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-95-02 and should be
submitted by May 2, 1995.
For the Commission by the division of Market Regulation,
pursuant to delegated authority.\8\
\8\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-8870 Filed 4-10-95; 8:45 am]
BILLING CODE 8010-01-M
