[Federal Register Volume 60, Number 167 (Tuesday, August 29, 1995)]
[Notices]
[Pages 44926-44927]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21354]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36138; File No. SR-OCC-95-09]
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
August 23, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 7, 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
from interested persons and to grant accelerated approval of the
proposed rule change on a temporary basis through June 28, 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 proposed rule change extends the Commission's previous
temporary approval of OCC's modifications that relate to OCC's
standards for letters of credit deposited with OCC as margin. In
general, OCC requires that letters of credit deposited by clearing
members as margin with OCC be irrevocable and unless otherwise
permitted by OCC expire on a quarterly basis. In addition, OCC may draw
upon a letter of credit regardless of whether the clearing member has
been suspended or defaulted on any obligation to OCC if OCC determines
that such action is advisable to protect OCC, other clearing members,
or the general public.\2\
\2\For a complete description of these modifications to the
standards for letters of credit, refer to Securities Exchange Act
Release No. 29641 (August 30, 1991), 56 FR 46027 [File No. SR-OCC-
91-13] (order temporarily approving proposed rule change through
February 28, 1992).
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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
The Commission previously granted temporary approval to proposed
rule changes filed by OCC that modified OCC Rule 604, which sets forth
the standards for letters of credit deposited with OCC as margin.\4\
\4\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), 45 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); 32532 (June 28, 1993) 58 FR 36232 [File No. SR-OCC-93-14]
(order temporarily approving proposed rule change through June 30,
1994); and 34206 (June 13, 1994), 59 FR 31661 [File No. SR-OCC-94-
06] (order temporarily approving proposed rule change through June
30, 1995).
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The standards set forth in Rule 604 include the following: (1) 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, (2) letters of credit must be irrevocable, (3) letters of
credit must expire on a quarterly basis, and (4) OCC may draw upon
letters of credit at any time, regardless of whether the clearing
member that deposited the letter of credit has been suspended or is in
default, if OCC determines that such action is advisable to protect
OCC, other clearing members, or the general public.\5\
\5\Supra note 2.
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OCC believes that the proposed rule change is consistent with the
requirements of Section 17A(b)(3)(F) of the Act\6\ because the
proposed rule change promotes the protection of investors by enhancing
OCC's ability to safeguard the securities and funds in its custody or
control or for which it is responsible.
\6\15 U.S.C. 78q-1.
[[Page 44927]]
(B) Self-Regulatory Organization's Statement on Burden on Competition
OCC does not believe that the proposed rule change will impact 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
Comments were not and are not intended to be solicited by OCC with
respect to the proposed rule change, and none were received. Since
approval of the original proposed rule change modifying its letter of
credit standards, OCC has received no adverse comments or complaints
from any of its clearing members, the banks, or other interested
parties with respect to the modifications to Rule 604 or to the
implementation of the revised letter of credit standards.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Section 17A(b)(3)(F) of the Act requires that the rules of a
clearing agency be designed to assure the safeguarding of securities
and funds in its custody or control or for which it is responsible.\7\
The Commission believes that the proposed rule change is consistent
with OCC's obligations under Section 17A(b)(3)(F) because the modified
standards for letters of credit will enable OCC to draw upon a letter
of credit at any time that OCC determines that such a draw is advisable
to protect OCC, other clearing members, or the general public. This
ability increases the liquidity of its margin deposits by enabling OCC
to substitute cash collateral for a clearing member's letter of credit
and consequently, will permit OCC to rely more safely upon such letters
of credit. In addition, by eliminating the issuer's right to revoke the
letter of credit, an issuer will no longer be able to revoke a letter
of credit at a time when the clearing member is experiencing financial
difficulty and most needs credit facilities. Finally, requiring that
the letters of credit expire quarterly rather than annually will result
in the issuers conducting more frequent credit reviews of the clearing
members for whom the letters of credit are issued. More frequent credit
reviews will facilitate the discovery of any adverse developments in a
more timely manner. By approving the proposed rule change on a
temporary basis through June 28, 1996, 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.\8\
\7\15 U.S.C. Sec. 78q-1(b)(3)(F) (1988).
\8\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 on an accelerated basis prior to the thirtieth
day after the date of publication of notice of the filing. The
Commission finds good cause for so approving the proposed rule change
because accelerated approval will allow the changes that have been
implemented pursuant to the previous temporary approval order to 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, DC 20549. Copies of such filing also will be available for
inspection and copying at the principal office of OCC. All submissions
should refer to File No. SR-OCC-95-09 and should be submitted by
September 19, 1995.
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-95-09) be, and hereby is, approved on a
temporary basis through June 28, 1996.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\9\
\9\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-21354 Filed 8-28-95; 8:45 am]
BILLING CODE 8010-01-M
