[Federal Register Volume 60, Number 145 (Friday, July 28, 1995)]
[Notices]
[Pages 38880-38881]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18606]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36003; File No. SR-OCC-95-07]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Order Granting Accelerated Approval on a Temporary
Basis of a Proposed Rule Change Concerning Equity TIMS
July 21, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
\1\ (``Act''), notice is hereby given that on May 26, 1995, 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
on the proposed rule change from interested persons and to grant
accelerated approval of the proposed rule change through May 31, 1996.
\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 purpose of the proposed rule change is to have the Commission
extend its order granting temporary approval of OCC's use of its
Theoretical Intermarket Margin System (``TIMS'') for calculating
clearing margin positions in equity options.\2\
\2\ Equity TIMS is a modified version of OCC's Non-Equity TIMS,
which is OCC's margin system used to calculate requirements on
options for which the underlying asset is anything but an equity
security. Securities Exchange Act Release No. 23167 (April 22,
1986), 51 FR 16127 [File No. SR-OCC-85-21] (order approving Non-
Equity TIMS).
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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.\3\
\3\ 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
On March 1, 1991, the Commission temporarily approved a proposed
rule change which authorized OCC to use TIMS to calculate clearing
member margin requirements on equity options.\4\ Since its initial
temporary approval of Equity TIMS, the Commission has extended the
temporary approval three times.\5\
\4\ After the Commission's approval of File No. SR-OCC-89-12 on
March 1, 1991, OCC phased out its previous margin system, which was
known as the ``production system,'' and since then has used Equity
TIMS to calculate its clearing members' margin requirements on
equity option positions. For a complete description of Equity TIMS,
refer to Securities Exchange Act Release No. 28928 (March 1, 1991),
56 FR 9995 [File No. SR-OCC-89-12] (order approving the use of
Equity TIMS to calculate margin on equity options on a temporary
basis through May 31, 1992).
\5\ Securities Exchange Act Release Nos. 30761 (May 29, 1992),
57 FR 24286 [File No. SR-OCC-92-15] (order extending the approval of
Equity TIMS through May 31, 1993); 32388 (May 28, 1993), 58 FR 31989
[File No. SR-OCC-93-06] (order extending the approval of Equity TIMS
through May 31, 1994); and 34065 (May 13, 1994), 59 FR 26534 [File
No. SR-OCC-94-03] (order extending the approval of Equity TIMS
through May 31, 1995).
Equity TIMS utilizes options price theory (i.e., an option pricing
model) to project the cost of liquidating in the event of a ``worst
case'' theoretical change in the price of the underlying securities,
each clearing member's short equity option positions and long equity
option positions on which OCC is entitled to assert a lien. This
projected liquidation cost is then used by Equity TIMS to calculate for
each clearing member a margin requirement to cover that cost.
OCC has requested an additional extension so that it can complete
its analysis of Equity TIMS. Specifically, in its discussions with the
Commission's staff preceding the Commission's initial temporary
approval of Equity TIMS, OCC represented that it would undertake to
analyze the effects of including equity option volatilities over longer
periods in determining margin intervals and would report the results of
its analysis to the Commission.\6\ OCC recently submitted a report of
its analysis to the Commission's staff. Accordingly, OCC seeks an
extension of the Commission's temporary approval of
[[Page 38881]]
Equity TIMS through May 31, 1996, so that the Commission may review and
discuss the report and several potential changes to Equity TIMS with
OCC.\7\
\6\ OCC initially was delayed because it expanded the scope of
its analysis from ten years to thirty years and had difficulty in
obtaining an accurate data base of information covering the expanded
period of review. OCC also determined that its analysis of equity
options volatility would benefit from a review by an outside
consultant, and because it took OCC some time to obtain the services
of an appropriate consultant, its analysis was delayed further.
\7\ OCC has not filed a proposed rule change regarding the
potential changes to Equity TIMS; however, OCC will file a draft
proposed rule change so that the Commission will have an opportunity
to comment on the changes before OCC officially seeks approval of
the changes under Section 19(b)(2) of the Act.
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OCC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act and the rules and regulations
thereunder because it will enhance OCC's ability to safeguard the
securities and funds in its custody or control or for which it
responsible.
(B) Self-Regulatory Organization's Statement on Burden on Competition
OCC does not believe that the proposed rule change will have an
impact on or impose a burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received from Members, Participants or Others
No written comments have been solicited or received. OCC will
notify the Commission of any written comments received by OCC.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Section 17A(b)(3)(F) \8\ of the Act requires 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 it is responsible. Additionally, Section 17A(a)(1) of the Act
\9\ encourages the use of efficient, effective, and safe procedures for
securities clearance and settlement. The Commission continues to
believe that OCC's proposal to utilize Equity TIMS meets the
requirements of the Act and that it represents an improvement over
OCC's previous margin system in several respects.\10\ Nevertheless,
while the Commission continues to believe that the margin methodology
employed by Equity TIMS is basically sound, the Commission staff must
fully analyze OCC's report to the Commission and several potential
changes to Equity TIMS before determining whether to grant permanent
approval for Equity TIMS.
\8\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
\9\ 15 U.S.C. 78q-1(a)(1) (1988).
\10\ Supra note 4.
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OCC has requested that the Commission find good cause for approving
the proposal prior to the thirtieth day after the publication of notice
of filing of the proposed rule change. The Commission finds such good
cause because the Commission believes that OCC's use of Equity TIMS
over the past five years has resulted in better assessments of OCC's
risk exposure associated with the clearance and settlement of its
clearing members' equity option positions and has resulted in
calculations of clearing margin that more accurately reflect that risk
exposure. Accordingly, to allow OCC to continue to use Equity TIMS
while the Commission and OCC further examine Equity TIMS, the
Commission finds that good cause exists for approving the proposed rule
change prior to the thirtieth day after publication of notice of
filing. The Commission also notes that during the four previous
temporary approval periods, OCC has not received any adverse comments
regarding Equity TIMS from its clearing members.
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 OCC. All
submissions should refer to File No. SR-OCC-95-07 and should be
submitted by August 18, 1995.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\11\ that the proposed rule change (File No. SR-OCC-95-07) be, and
hereby is, approved through May 31, 1996.
\11\ 15 U.S.C. 78s(b)(2) (1988).
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\12\
\12\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-18606 Filed 7-27-95; 8:45 am]
BILLING CODE 8010-01-M
