[Federal Register Volume 62, Number 92 (Tuesday, May 13, 1997)]
[Notices]
[Pages 26342-26344]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12423]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38568; File No. SR-DCC-97-02]
Self-Regulatory Organizations; Delta Clearing Corp.; Notice of
Filing of Proposed Rule Change Relating to Multiple Brokers for Options
Transactions
May 2, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934, as amended (``Exchange Act''),\1\ is hereby given that on March
11, 1997, Delta Clearing Corp. (``Delta'') filed with the Securities
and Exchange Commission (``Commission'') the proposed rule change as
described in Items I, II and III below, which items have been prepared
primarily by Delta. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change.
The proposed rule change consists of changes to Delta's procedures
for options trading (``Options Procedures'') to authorize brokers
approved by Delta which satisfy the conditions set forth in the Options
Procedures to submit trade reports for options transactions on behalf
of participants.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Delta included statements
concerning the purposes of and basis for the purposed 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. Delta has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.\2\
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\2\ The Commission has modified the text of the summaries
submitted by Delta.
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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 will add a new Article XX, entitled
``Authorized Brokers,'' to Delta's Options Procedures to permit Delta
to accept from authorized brokers for clearance and settlement options
transactions entered into by participants through the facilities of
authorized brokers. When Delta was originally registered, it accepted
options transactions from participants that were entered into directly
between the two participants or from RMJ Options Trading Corp.
(``RMJ'') options transactions that were entered into through the
facilities of RMJ. More recently, Delta replaced RMJ as the sole
options broker it accepted trades from with Euro Broker Maxcor Inc.\3\
As a result of this proposal, Delta will be able to receive data on
options transactions that are entered into through the facilities of
and reported to Delta by any options broker that meets Delta's
standards and that Delta has specifically authorized to perform such
functions.
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\3\ Securities Exchange Act Release No. 37149 (April 29, 1996),
61 FR 20298. Under that proposed rule change, references to RMJ in
Delta's rules were deemed to be references to the options broker
currently performing the duties and responsibilities of RMJ under
the Options Procedures.
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A ``broker'' is defined in the procedures as an entity registered
under Section 15(b) or Section 15C of the Exchange Act that is engaged
in the business of effecting transactions in securities for the account
of others within the meaning of Section 3(a)(4) of the Exchange Act. An
``authorized broker'' is defined as a broker that has been authorized
by Delta in accordance with these procedures to broker options
transactions among participants.
Although the proposal will allow Delta to designate certain options
brokers as authorized to submit trades,
[[Page 26343]]
such brokers would not be accorded the status of a ``participant''
under Delta's rules, and the Options Procedures make no provision for
an authorized broker to maintain money or securities accounts at Delta.
Section 2004 of the Options Procedures states, ``[T]he role of the
Authorized Broker under these Procedures shall be limited to the
brokering of transactions among Participants in the clearing system and
the submission of Authorized Broker Trade Reports in accordance with
Section 401 of these Procedures.'' Accordingly, no provision has been
made for margin requirements or liquidation of an authorized broker's
accounts in the event of the broker's suspension. Nevertheless, the
procedures will identify the minimum requirements a brokers' broker
must meet and the procedures Delta must follow in the event it
determines to deny access to an authorized broker or suspend an
authorized broker's access to Delta's clearing system.
The conditions for designation as an authorized broker are set out
in Section 2001 of the Options Procedures. The qualifications necessary
for designation as an authorized broker will include the following: (1)
The broker must be properly registered with the Commission under
Section 15(b) or 15C of the Exchange Act and be a member in good
standing of the National Association of Securities Dealers, Inc.; (2)
the broker must indicate an interest in brokering transactions to be
cleared through Delta's clearing system and have the operational
capacity to do so; (3) the broker must review the requirements of
Exchange Act Rule 17a-23 and execute a certificate confirming its
compliance therewith; (4) the broker must be in compliance with all net
capital requirements; (5) the broker must maintain the books and
records required to be maintained under the Options Procedures; (6) the
broker must employ personnel and utilize procedures which are
sufficient to discharge its obligations in a timely and efficient
manner; and (7) absent special circumstances, neither the broker nor
any associated person shall be subject to a statutory disqualification.
Section 401 of the procedures will be amended to provide for
submission of trade reports by authorized brokers in the case of
brokered transactions or by participants in the case of nonbrokered
transactions. Delta's current Options Procedures provide for submission
of trade reports by participants or by RMJ in the case of brokered
transactions. Under Delta's existing Options Procedures, RMJ is not
required to report transactions by telephone to Delta's clearing bank
(except for transactions expiring on the trade date) while participants
are required to report transactions by telephone. In addition, under
Delta's existing Options Procedures, the time by which RMJ is required
to report transactions expiring on the trade date is later than the
time by which participants are required to report such trades. The
Options Procedures, as proposed to be revised, provide for uniform
reporting requirements including use of the current time frames for
nonbrokered transactions for all participants and authorized brokers.
References to RMJ are deleted in Section 401 of the Options Procedures
and in all other sections of the procedures.
Article XX will provide that the following sections of the Options
Procedures, which have been and continue to be applicable to
participants, are also made applicable to authorized brokers:
(i) Section 206, which requires the delivery of financial reports
and audits;
(ii) Section 208, setting forth the admission procedure for an
applicant;
(iii) Section 209(a), requiring an authorized broker prior to
admission as an authorized broker to execute an agreement agreeing to
be bound by Delta's procedures;
(iv) Sections 209(b)(iv) and (v), pursuant to which an authorized
broker agrees to permit inspection of its books and records (limited to
the extent relating to transactions cleared through Delta's clearing
system) and to indemnify Delta and its principals from default or
misconduct by the authorized broker;
(v) Section 210(b), authorizing an authorized broker to withdraw
voluntarily by delivering written notice to Delta and Delta's clearing
bank;
(vi) Sections 301 and 303, requiring among other things that the
authorized broker maintain an office during business hours at which a
representative of the authorized broker would be available to take all
action necessary for conducting business through the clearing system
and maintain computer and communication equipment capable of supporting
software provided by Delta enabling computer to computer communication
of reports and other notices;
(vii) Article XII (Sections 1201, 1202, and 1208), providing for
suspension of authorized brokers upon the terms set forth therein;
(viii) Article XV, applying the force majeure provisions to
authorized brokers;
(ix) Article XVII, pursuant to which the authorized brokers agree
to submit to the jurisdiction of the courts of the State of New York or
the United States courts for the Southern District of New York; and
(x) The definition of authorized representative.
The revised procedures also will provide in Section 2002 that every
authorized broker shall keep records with respect to each transaction
submitted by such authorized broker to be effected through Delta's
clearing system showing the name of the participants to the
transaction.
Delta believes that the foregoing changes are consistent with the
terms of a letter dated May 29, 1996, from Robert C. Mendelson, Esq. to
Gordon K. Fuller, Esq., Special Counsel, Office of Market Supervision,
and the response letter dated June 28, 1996, from Sheila C. Slevin,
Esq., Assistant Director of the Division of Market Regulation, to Mr.
Mendelson. Footnote 3 to Mr. Mendelson's letter provides that each
broker admitted as a broker in the clearing system must:
(i) be registered as a broker-dealer registered with the
Commission pursuant to Section 15(b) of the Act or registered as a
government securities broker or dealer pursuant to Section 15C of
the Act, (ii) be a member of the National Association of Securities
Dealers, Inc., (iii) have indicated an interest in brokering
transactions to be cleared through Delta and have the operational
capacity to do so, and (iv) have represented to Delta that it has
examined its obligations under Rule 17a-23 and is either exempt from
the requirements thereof or has complied with the requirements
thereof.
Section 2001 as proposed to be adopted incorporates these criteria.
Brokers will be approved separately as authorized brokers for
options transactions and repurchase agreement transactions cleared
through Delta but may be approved to act as an authorized broker for
both options and repurchase agreement transactions. Initially, Delta
anticipates that there will be three entities which will apply for
admission and be admitted as authorized brokers for the options
clearing system.
Delta expects that the approval of authorized brokers for options
transactions may increase the volume of options transactions cleared
through Delta; however, Delta expects to clear no more than two hundred
options contracts per day as a consequence of admitting additional
authorized brokers. In light of the fact that the approval of
authorized brokers may result in increased trading volume and the fact
that Delta presently clears options and repurchase agreement
transactions on two different hardware platforms, Delta has adopted
interim internal operating
[[Page 26344]]
procedures providing for manual oversight of participant and system
exposure limits.
Delta believes the proposed rule change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to Delta and in particular with Section
17A(b)(3)(F) of the Exchange Act \4\ which requires that a clearing
agency be organized and its rules be designed to promote the prompt and
accurate clearance and settlement of securities transactions, to
safeguard funds and securities in its possession and control, and to
remove impediments to and perfect the mechanism of a national system
for the prompt and accurate clearance and settlement of securities
transactions. Delta believes that the introduction of multiple brokers
will permit wider utilization of the clearing system by participants.
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\4\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Self-Regulatory Organization's Statement on Burden on Competition
Delta does not believe that the proposed rule change will impose
any burden on competition not necessary or appropriate in furtherance
of the purpose of the Exchange Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants or Others
Comments were neither solicited nor received. Delta will notify the
Commission of any written comments received by Delta.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Actions
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 the self-regulatory organization 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, 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. 552, will be available for inspection and copying in the
Commission's Public Reference Section, 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 Delta. All
submissions should refer to File No. SR-DCC-97-02 and should be
submitted by June 3, 1997.
For the Commission by the Division of Market Regulation pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-12423 Filed 5-12-97; 8:45 am]
BILLING CODE 8010-01-M
