[Federal Register Volume 59, Number 117 (Monday, June 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14938]
[[Page Unknown]]
[Federal Register: June 20, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34206; File No. SR-OCC-94-06]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Order Granting Accelerated Approval on a Temporary
Basis of a Proposed Rule Change Relating to Revisions to the Standards
for Letters of Credit Deposited as Margin
June 13, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on May 27, 1994, The Options
Clearing Corporation (``OCC'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change 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 through June 30, 1995.
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\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 proposed rule change extends the Commission's previous
temporary approval of OCC's modifications to its rules setting forth
the standards for letters of credit deposited with OCC as margin.
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
Previously, OCC has filed with the Commission and the Commission
has temporarily approved rule changes which modify the standards for
letters of credit deposited with OCC as margin.\2\ Like the previous
filings, this filing makes several modifications to Rule 604, which
sets forth the standards for acceptable forms of collateral deposited
with OCC as margin. With respect to letters of credit constituting an
acceptable form of margin, the following standards must be followed.
First, in order to conform to the Uniform Commercial Code and to avoid
any ambiguity as to the latest time for honoring demands upon letters
of credit, letters of credit must state expressly that payment must be
made prior to the close of business on the third banking day following
demand. Second, letters of credit must be irrevocable. Third, letters
of credit must expire on a quarterly basis. OCC also is adding to Rule
604 language to make explicit its authority to draw upon letters of
credit at any time, whether or not the clearing member that deposited
the letter of credit has been suspended or is in default, if OCC
determines that such draws are advisable to protect OCC, other clearing
members, or the general public.\3\
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\2\Securities Exchange Act Release Nos. 29641 (August 30, 1991),
56 FR 46027 [File No. SR-OCC-91-13] (order temporarily approving
proposed rule change through February 28, 1992); 30424 (February 28,
1992), 57 FR 8160 [File No. SR-OCC-92-06] (order temporarily
approving proposed rule change through May 31, 1992); 30763 (June 1,
1992), 57 FR 24284 [File No. SR-OCC-92-11] (order temporarily
approving proposed rule change through August 31, 1992); 31126
(September 1, 1992) 57 FR 40925 [File No. SR-OCC-92-19] (order
temporarily approving proposed rule change through December 31,
1992); 31614 (December 17, 1992) 57 FR 61142 [File No. SR-OCC-92-37]
(order temporarily approving proposed rule change through June 30,
1993); and 32532 (June 28, 1993), 58 FR 36232 [File No. SR-OCC-93-
14] (order temporarily approving proposed rule change through June
30, 1994).
\3\For a detailed discussion of the modifications to OCC's rules
governing letters of credit deposited as margin, refer to Securities
Exchange Act Release No. 29641, supra note 2.
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Since approval of its original letters of credit filing, OCC has
received no adverse comments or complaints from any of its clearing
members, banks, or other interested parties with respect to the
modifications to Rule 604 or to the implementation of the revised
letter of credit standards. Accordingly, OCC is requesting that the
Commission again approve the revisions.
OCC believes the proposed rule change is consistent with the
requirements of Section 17A of Act and the rules thereunder.\4\
Specifically, OCC believes the proposed rule change promotes the
protection of investors by enhancing OCC's ability to safeguard the
securities and funds in its possession or subject to its control.
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\4\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 will impose any
burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Comments were not and are not intended to be solicited with respect
to the proposed rule change, and none were received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Commission believes that the proposal is consistent with
Section 17A of the Act and specifically with Section 17A(b)(3)(F) of
the Act.\5\ That section requires that the rules of a clearing agency
be designed to assure the safeguarding of securities and funds which
are in the custody or control of the clearing agency or for which the
clearing agency is responsible.
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\5\15 U.S.C. 78q-1(b)(3)(F) (1988).
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The revised standards should make letters of credit deposited as
margin more liquid instruments and, consequently, should permit OCC to
more safely rely upon such letters of credit. Because the revised
standards will induce letter of credit issuers to reexamine clearing
members' financial conditions every three months rather than annually
as under the prior standards, the financial conditions of clearing
members electing to deposit letters of credit as margin should be
assessed more frequently. More frequent assessments should facilitate
the discovery of any adverse developments in a more timely manner. In
addition, because letters of credit will be irrevocable, issuers of
letters of credit no longer will be able to revoke letters of credit at
times when the clearing members most need credit facilities (e.g., when
a clearing member is experiencing financial difficulties or during
times of market volatility). By approving the proposed rule change on a
temporary basis through June 30, 1995, OCC, the Commission, and other
interested parties will be able to assess further, prior to permanent
Commission approval, any effects the revised standards have on letter
of credit issuance and on margin deposited at OCC.\6\
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\6\The Commission and OCC currently are studying concentration
limits on letters of credit deposited as margin. The Division
believes that clearing agencies that accept letters of credit as
margin deposits or clearing fund contributions should limit their
exposure by imposing concentration limits on the use of letters of
credit. Generally, clearing agencies impose limitations on the
percentage of an individual member's required deposit or
contribution that may be satisfied with letters of credit,
limitations on the percentage of the total required deposits or
contributions that may be satisfied with letters of credit by any
one issuer, or some combination of both. OCC has no concentration
limits on the use of letters of credit issued by U.S. institutions.
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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 the filing. The Commission finds good cause
for so approving because the Commission believes it is desirable that
the proposed rule change be approved before the expiration of the
Commission's previous order granting temporary approval of these
modifications to the letter of credit standards. By approving this
proposed rule filing before expiration of the prior temporary approval
order, the changes that have been implemented pursuant to the temporary
approval order may remain in place during the further assessment of any
effects the revised standards have on the issuance of letters of credit
and on margin deposited at OCC pending permanent approval.
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 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 OCC. All
submissions should refer to the file number SR-OCC-94-06 and should be
submitted by July 11, 1994.
V. Conclusion
On the basis of the foregoing, the Commission finds that OCC's
proposed rule change is consistent with the Act and in particular with
Section 17A of the Act.
It is therefore ordered, under Section 19(b)(2) of the Act, that
the proposal (File No. SR-OCC-94-06) be, and hereby is, approved
through June 30, 1995.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland
Deputy Secretary.
[FR Doc. 94-14938 Filed 6-17-94; 8:45 am]
BILLING CODE 8010-01-M
