[Federal Register Volume 62, Number 133 (Friday, July 11, 1997)]
[Notices]
[Pages 37326-37327]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-18228]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38796; File No. SR-DCC-97-02]
Self-Regulatory Organizations; Delta Clearing Corp.; Order
Approving a Proposed Rule Change Relating to Multiple Brokers for
Options Transactions
June 30, 1997.
On March 11, 1997, Delta Clearing Corp. (``Delta'') filed with the
Securities and Exchange Commission (``Commission'') a proposed rule
change (File No. SR-DCC-97-02) pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Exchange Act'').\1\ Notice of the
proposal was published in the Federal Register on May 13, 1997.\2\ No
comment letters were received. For the reasons discussed below, the
Commission is approving the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 38568 (May 2, 1997), 62
26342.
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I. Description
The rule change modifies Delta's procedures for options trading
(``Options Procedures'') to allow brokers which have been approved by
Delta pursuant to the conditions set forth in the Options Procedures to
submit trade reports for options transactions on behalf of
participants. Currently, Delta's Options Procedures provide that Delta
may accept trade reports for options transactions only from one broker,
Euro Broker Maxcor, Inc. (``Euro Broker'').
Although the rule change allows Delta to designate certain options
brokers as authorized to submit trades, such brokers will not be
accorded the status of a ``participant,'' and the Options Procedures
make no provision for an authorized broker to maintain money or
securities accounts at Delta. 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 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.\3\
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\3\ 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
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 must have the operational capacity to do so; (3) the
broker must review the requirements of Exchange Act Rule 17a-23 and
must 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 utilized 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 persons
shall be subject to a statutory disqualification.
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The rule change amends Section 401 of the Options Procedures 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. The rule change also amends Section 2002 of
the procedures to provide that every authorized broker shall keep
records showing the name of the participants to the transactions with
respect to each transaction submitted by such authorized broker to be
effected through Delta's clearing system.\4\
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\4\ The rule change also makes other sections of the Options
Procedures apply to options brokers. These include:
(i) Section 206, requiring 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 extend relating to transactions cleared
through Delta's clearing system) and to indemnify Delta and its
principals from default of misconduct by the authorized broker;
(v) Section 210(b), allowing 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 actions 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 in Article I.
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[[Page 37327]]
Brokers may be approved to act either as authorized brokers for
options transactions or as authorized brokers for repurchase agreement
transactions cleared through Delta or may be approved to act as
authorized brokers for both options and repurchase agreement
transactions. Initially, Delta anticipates that there will be three
entities which will apply and will be authorized as brokers for the
options clearing system.\5\
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\5\ Such brokers are Euro Broker, RMJ Options Trading Corp., and
GFI Group, Inc.
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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 procedures providing for manual oversight of
participant and system exposures limits.\6\
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\6\ At the start of each business day, Delta will review the
exposure of each participant from options and repurchase agreement
transactions to determine any violations of exposure limits. Delta
will establish a watch list of any participant whose exposure is 80%
of their exposure limit. Delta will monitor closely all activity by
participants on the watch list. If necessary, Delta will also
calculate intraday exposure for participants which may result in
additional collateral calls.
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II. Discussion
Section 17A(b)(3)(F) \7\ of the Exchange Act 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 custody or
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. The Commission believes that Delta's
introduction of multiple brokers for options transactions should permit
wider utilization of its clearing system by participants. Thus, the
proposal should increase the number of trades that are incorporated
into the national clearance and settlement system and that will obtain
the benefit of Delta's guarantee and Delta's risk management system. By
allowing more trades to be settled through an automated clearance
system, the proposal should also enhance the prompt and accurate
clearance and settlement of trades.
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\7\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission believes that providing for multiple brokers for
options transactions and the possible increase in options trades
processed through Delta is being done consistently with Delta's
obligations to safeguard securities and funds under Section 17A. For
example, Delta has adopted procedures to monitor participants'
exposure. Also, Delta will only accept brokers that meet certain
standards designed to ensure that the broker has the facilities to
perform its functions promptly and accurately. Finally, Delta will
receive the broker's financial statements and the ability to inspect
the broker's books and records and thus will be able to monitor any
changes in the broker's condition.
III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Exchange Act and in
particular with the requirements of Section 17A of the Exchange Act and
the rules and regulations thereunder.
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Exchange Act, that the proposed rule change (File No. SR-DCC-97-02) be
and hereby is approved.
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. 97-18228 Filed 7-10-97; 8:45 am]
BILLING CODE 8010-01-M
