[Federal Register Volume 62, Number 97 (Tuesday, May 20, 1997)]
[Notices]
[Pages 27638-27640]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13102]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38625; File No. SR-OCC-97-01]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of a Proposed Rule Change Permitting Certain Fund
Shares To Satisfy Margin Requirements and Permitting the Use of Certain
Fund Shares and Trust Units for Escrow Deposits
May 13, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on February 21, 1997, The
Options Clearing Corporation (``OCC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change (File No.
SR-OCC-97-01) 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.
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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 will permit OCC participants to deposit
with OCC certain shares issued by an open-end management investment
company (``fund shares'') as a form of margin. The
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proposed rule change also will permit participants to make escrow
deposits with OCC by using fund shares and certain publicly traded
units of beneficial interest in unit investment trusts (``trust
units'').
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.\2\
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\2\ 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
(1) Using Fund Shares as a Form of Margin
The proposed rule change will amend subparagraph (4) of OCC Rule
604(d), which sets forth the margin deposit eligibility requirements
for debt and equity issues, to permit OCC participants to deposit as a
form of margin collateral fund shares issued by open-end management
investment companies that hold portfolios or baskets of common stocks.
These classes of fund shares are traded and cleared like shares of
common stock and are typically held in book-entry form at a securities
depository. As a result, OCC believes it will be able to readily
perfect a security interest in deposited fund shares and will be able
to liquidate them if necessary. Accordingly, OCC believes it is
appropriate to allow its participants to use fund shares as a form of
margin collateral under the conditions specified in subparagraph (4) of
Rule 604(d), which currently permits OCC participants to use approved
trust units as margin deposits.\3\
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\3\ Currently, the only trust units approved for deposit as
margin are Standard & Poor's (``S&P'') Depository Receipts
(``SPDRs'') on the S&P 500 Index and S&P 400 Mid-Cap Index.
Securities Exchange Act Release No. 38105, (December 31, 1996) 62 FR
1014 [File No. SR-OCC-96-13] (order approving a proposed rule change
relating to unit investment trusts as margin collateral).
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To enable participants to deposit fund shares as margin collateral,
the proposed rule change will amend the term ``stock'' defined in
subparagraph (4) of Rule 604(d) to include fund shares. In addition,
fund shares also will have to meet the requirements applicable to
stocks under Rule 604(d) and be of a class approved by OCC for deposit
as margin. Because Rule 604(d)(1) requires that a stock be exchange
listed or traded on the NASDAQ National Market System, the ``publicly
traded'' requirement of subparagraph (4) will be deleted as
unnecessary.
The proposed rule change also will amend Section 11 of OCC's
Interpretations and Policies to require that OCC's Membership/Margin
Committee (``Committee'') approve classes of fund shares for deposit as
margin. Presently, World Equity Benchmark Shares (``WEBS'') listed on
the American Stock Exchange are the only class of fund shares the
Committee has approved.
(2) Using Fund Shares and Trust Units as Escrow Deposits
The proposed rule change also will amend OCC Rule 1801(b), which
relates to index option escrow deposits, by adding new subparagraph 2
which will define the term ``common stocks'' to include fund shares and
trust units.\4\ By adding this definition, OCC Rule 1801(b) will permit
participants to use fund shares and trust units as part of an escrow
deposit made with respect to index call option contracts carried in a
short position in a participants' customer account.\5\
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\4\ The proposed rule change also will make technical changes to
Rule 1801 to reflect the addition of new subparagraph (b)(2).
\5\ OCC has filed with the Commission a proposed rule change
(File No. SR-OCC-97-02) that will authorize OCC to issue and clear
options on fund shares and trust units. OCC also asserts that, if
approved by the Commission, fund shares and trust units will by
definition become ``underlying securities as defined by Article I,
Section 1 of OCC's bylaws,'' and escrow deposits with respect to
call option contracts on these underlying securities carried in a
short position will be automatically permitted under the existing
provisions of OCC Rule 610, which relates to the deposit of
underlying securities in lieu of margin.
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The language of the new definition parallels that of Rule 604(d),
as proposed to be amended herein. Accordingly, fund shares and trust
units deposited must meet the existing requirements for deposits of
common stock under Rule 1801(b) and must be of a class approved by OCC
for deposit as margin collateral. Because the Committee already has
approved for deposit as margin SPDRs on the S&P 500 Index and S&P 400
Mid-Cap Index (as an eligible class of trust units) and WEBS (as as
eligible class of fund shares), upon approval of this rule filing SPDRs
and WEBS will be eligible for use as escrow deposits for short
positions in index call options.\6\
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\6\ If the Commission approves the proposed rule change, OCC
will send a notice to each of its custodian banks advising them that
the term ``common stocks'' as used in the Amended and Restated On-
Line Escrow Deposit Agreement includes the SPDRs and WEBS identified
above.
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OCC believes that the proposed rule change is consistent with the
requirements of section 17A of the Act \7\ and the rules and
regulations thereunder because it expands the forms of margin
collateral that may be deposited with OCC in a prudent and safe manner
designed to assure the safeguarding of securities in OCC's custody and
control.
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\7\ 15 U.S.C. 78q-1.
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(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
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
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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-97-01 and should be submitted by June 10, 1997.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-13102 Filed 5-19-97; 8:45 am]
BILLING CODE 8010-01-M
