[Federal Register Volume 59, Number 105 (Thursday, June 2, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13380]
[[Page Unknown]]
[Federal Register: June 2, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34110; File No. SR-ICC-600-21]
Self-Regulatory Organizations; The Intermarket Clearing
Corporation; Notice of Filing of the Withdrawal of an Application for
Registration as a Clearing Agency
May 25, 1994.
Pursuant to section 19(a)(3) of the Securities Exchange Act of 1934
(``Act''),\1\ The Intermarket Clearing Corporation (``ICC'') has filed
with the Securities and Exchange Commission (``Commission'') notice of
its intent to withdraw its request for permanent registration as a
clearing agency and to terminate its temporary registration as a
clearing agency.\2\ The Commission is publishing this notice to solicit
comments on ICC's proposal from interested persons.
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\1\15 U.S.C. 78s(a)(3) (1988).
\2\Letter from James C. Yong, Vice President and Assistant
Secretary, ICC, to Jonathan G. Katz, Secretary, Commission (March
24, 1994).
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I. Discussion
ICC is the commodity clearing subsidiary of The Options Clearing
Corporation (``OCC''). ICC commenced operations in 1985 as a ``clearing
organization,'' as defined in the rules promulgated under the Commodity
Exchange Act,\3\ and therefore is subject to oversight and regulation
by the CFTC. ICC guarantees, clears, and settles futures contracts,
options on futures contracts, and commodity options which are traded on
those contract markets that have designated ICC as their clearing
organization.\4\
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\3\Commodity Futures Trading Commission (``CFTC'') Rule 1.3(d)
[17 CFR 1.3(d) (1993)] defines clearing organization as the person
or organization which acts as a medium for clearing transactions in
commodities for future delivery or commodity option transactions or
for effecting settlements of contracts for future delivery or
commodity option transactions for and between members of a contract
market.
\4\Currently, ICC acts as the clearing organization for the Amex
Commodities Corp., the New York Futures Exchange, Inc., and the
Philadelphia Board of Trade.
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Because the economic similarity between certain securities products
and certain commodity products created opportunities for intermarket
hedging and arbitrage, ICC and OCC developed a program to offer cross-
margining to joint members of ICC and OCC.\5\ The original cross-
margining program between ICC and OCC required a joint member to
transfer positions in securities options eligible for cross-margining
from its OCC account to its account at ICC. Such options positions and
futures contracts eligible for cross-margining were margined at ICC
based upon the net risk of the combined positions. ICC held all
positions, margin deposits, and clearing fund deposits with respect to
the cross-margining program. ICC was obligated to OCC to perform a
participating joint member's obligations with respect to short
positions in securities options held in the joint member's ICC cross-
margining account, and OCC remained obligated to collect and pay all
premiums for transactions in securities options and to effect
settlement of all exercises. Because securities positions were held and
were margined at ICC and because ICC held all the margin deposits and
clearing fund deposits with respect to cross-margined positions, ICC
believed that it could possibly be viewed as being within the Act's
definition of a clearing agency\6\ and therefore registered with the
Commission as such.\7\
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\5\Securities Exchange Act Release Nos. 26153 (October 3, 1988),
53 FR 39567 [File No. SR-OCC-86-17] (order approving OCC/ICC
proprietary cross-margining program) and 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-
margining program).
\6\Section 3(a)(23)(A) [15 U.S.C. 78c(a)(23)(A) (1988)] defines
a clearing agency as any person who acts as an intermediary in
making payments or deliveries or both in connection with
transactions in securities or who provides facilities for comparison
of data respecting the terms of settlement, to reduce the number of
securities transactions, or for the allocation of securities
settlement responsibilities.
\7\On October 3, 1988, the Commission granted ICC temporary
registration as a clearing agency for a period of eighteen months
(Securities Exchange Act Release No. 26154 (October 3, 1988), 53 FR
39556). On April 5, 1990, October 3, 1991, and April 2, 1993, the
Commission extended ICC's temporary registration for additional
eighteen month periods (Securities Exchange Act Release Nos. 27879
(April 5, 1990), 55 FR 39556; 29781 (October 3, 1991), 56 FR 50959;
and 32098 (April 2, 1993), 58 FR 18277).
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Following regulatory approval of the cross-margining program
between ICC and OCC, OCC entered into cross-margining arrangements with
several other commodity clearing organizations.\8\ Pursuant to those
later cross-margining programs, instead of transferring all cross-
margined option and futures positions into an account held at one
clearing organization, cross-margined option positions are held at OCC
and cross-margined futures positions are held at the participating
commodity clearing organization. OCC and the participating commodity
clearing organization share information regarding the positions held in
their cross-margining accounts and treat the cross-margining accounts
as being combined for purposes of calculating margin requirements.
Collateral deposited to satisfy margin requirements is subject to the
joint control of OCC and the participating commodity clearing
organization. Members electing to participate in a cross-margining
program must grant OCC and the participating commodity clearing
organization cross-liens on option positions maintained at OCC and on
futures positions maintained at the participating commodity clearing
organization. Under this later cross-margining structure, a
participating commodity clearing organization is not considered to be
within the Act's definition of a clearing agency and therefore is not
required to register with the Commission as such.
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\8\E.g., Securities Exchange Act Release Nos. 27296 (September
26, 1989), 54 FR 41195 (order approving OCC/CME cross-margining
program for proprietary positions); 29991 (November 26, 1991), 56 FR
61458 (order approving expansion of OCC/CME cross-margining program
to include positions held for market professionals); 29888 (October
31, 1991), 56 FR 56680 (order approving OCC/Board of Trade Clearing
Corporation cross-margining program for proprietary positions);
32681 (July 27, 1993), 58 FR 41302 (order approving expansion of
OCC/BOTCC cross-margining program to include positions held for
market professionals); 30413 (February 26, 1992), 57 FR 7830 (order
approving OCC/Kansas City Board of Trade Clearing Corporation
[``KCBOTCC''] cross-margining program for proprietary positions);
and 32708 (August 2, 1993), 58 FR 42586 (order approving the
expansion of the OCC/KCBOTCC cross-margining program to include
positions held for market professionals).
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Recently, the cross-margining program between ICC and OCC was
restructured so that it parallels the cross-margining programs between
OCC and other participating commodity clearing organizations.\9\ ICC
believes that under the restructured cross-margining program it will no
longer be acting as an intermediary in making payments or deliveries in
connection with securities transactions and therefore will not be a
clearing agency under the Act.\10\ Accordingly, ICC requests that its
application for permanent registration with the Commission as a
clearing agency be withdrawn.
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\9\Securities Exchange Act Release No. 33342 (December 22,
1993), 58 FR 67885 [File Nos. SR-OCC-93-07 and SR-ICC-93-04] (order
approving proposed rule changes to restructure the cross-margining
program between OCC and ICC).
\10\ICC and OCC also offer joint members a cross-netting service
which provides for the netting of a member's OCC exercise and
assignment settlement obligations with its ICC settlement
obligations. Previously, a joint member was able to select either
ICC or OCC as its designated clearing organization (``DCO'') for the
purpose of settling its cross-netted obligations. The clearing
agency selected as DCO was to act as the agent of the other clearing
organization in effecting the cross-netted settlements. ICC has
never been selected as a joint member's DCO, and pursuant to the
recent approval of rule changes filed by ICC and OCC, members are no
longer able to select ICC as their DCO. For a more detailed
description of the proposed rule changes, refer to Securities
Exchange Act Release No. 34088 (May 19, 1994), 59 FR 27303 [File
Nos. SR-OCC-94-01 and SR-ICC-94-01] (order approving proposed rule
change related to restructuring of cross-netting agreement between
ICC and OCC). Accordingly, ICC believes that it will no longer be
performing any activity with respect to cross-netting that would
bring it within the definition of a clearing agency under the Act.
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II. 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 available for inspection and copying in the
Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of the above-referenced
self-regulatory organization.
All submissions should refer to File No. SR-ICC-600-21 and should
be submitted by July 5, 1994.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-13380 Filed 6-1-94; 8:45 am]
BILLING CODE 8010-01-M
