[Federal Register Volume 60, Number 177 (Wednesday, September 13, 1995)]
[Notices]
[Pages 47633-47634]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-22652]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36197; International Series Release No. 850; File No.
SR-OCC-95-11]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of a Proposed Rule Change Modifying the Capital
Computation Formula and Reporting Requirements Applicable to Canadian
Clearing Members of the Options Clearing Corporation
September 7, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 13, 1995, the Options
Clearing Corporation (``OCC'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change (File No. SR-OCC-
95-11) as described in Items I, II, and III below, which items have
been prepared primarily by OCC. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
\1\ 15 U.S.C. Sec. 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 modify OCC's rules
pertaining to the financial requirements of Canadian Clearing Member
\2\ firms, including the capital computation formula and reporting
requirements applicable to those members, to reflect revisions to the
capital computation and reporting standards recently adopted by various
Canadian regulatory authorities.
\2\ The term Canadian Clearing Member is defined in OCC By-Law
Article I, Section I.N. (3).
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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. Set forth in sections (A), (B), and (C) below, are the
most significant aspects of such statements.\3\
\3\ The Commission has modified parts of these statements.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The proposed rule change seeks to modify OCC's rules concerning the
financial requirements of Canadian Clearing Members, including the
capital computation formula and reporting requirements applicable to
Canadian Clearing Members, to reflect revisions to the capital
computation and reporting standards recently adopted by various
Canadian regulatory authorities. OCC's rules allow Canadian Clearing
Members to submit required financial reports in accordance with the
accounting and reporting standards of their appropriate self-regulatory
body.\4\ In monitoring Canadian Clearing Member compliance with OCC
financial requirements, OCC
[[Page 47634]]
converts this financial information into a form consistent with Rule
15c3-1 under the Act.\5\
\4\ OCC By-law, Article I.N. (2) employs the term ``appropriate
self-regulatory body'' as defined in the Supplementary Instructions
re Completion of the Joint Regulatory Financial Questionnaire to
refer to the governmental agency or self-regulatory authority
primarily responsible for regulating the activities of a Canadian
Clearing Member.
\5\ 17 CFR 240.15c3-1.
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The capital formula applied under Canadian securities regulations
to Canadian securities firms has been revised and incorporated into a
new standard report format. The prior capital formula applied a minimum
capital requirement, as assessed by a working capital computation
(i.e., total capital less non-allowable assets), based upon volume of
business determined by a percentage of adjusted liabilities. The new
capital formula continues to be based on a working capital computation
minus certain charges, including charges that reflect the risk of
proprietary securities held in inventory. However, the new capital
formula replaces the concept of adjusted liabilities with revised
definitions of allowable assets and margin charges that are intended to
reflect the credit worthiness of counterparties and the economic
substance of transactions. The report format used by Canadian
securities firms to report their capital computation also has been
revised. OCC proposes to change its financial requirements and
reporting rules to conform them to the revised capital formula and
reporting format.
Specifically, the current Interpretations and Policies
(``Interpretation'') .01 to OCC Rule 301, regarding initial financial
requirements, provides that a Canadian Clearing Member that commenced
doing business as a broker or dealer within twelve months prior to its
admission to Clearing Membership must maintain ``initial net free
capital,'' as defined in the Supplementary Instructions re Completion
of the Joint Regulatory Financial Questionnaire (``Supplementary
Instructions''), of not less than ten percent of such Clearing Member's
``adjusted liabilities,'' as defined in the Supplementary Instructions,
until the later of (i) three months after its admission to Clearing
Membership or (ii) twelve months after it commenced doing business as a
broker or dealer. Currently, Interpretation .01 to OCC Rule 302,
regarding minimum net capital requirements, provides that a Canadian
Clearing Member shall maintain net free capital, as defined in the
Supplementary Instructions, of not less than the amount of net free
capital that would be required of such Clearing Member under Section
100.2 of the By-Laws of the Investment Dealers Association of Canada
(``IDAC'') if the Clearing Member was a member of the IDAC.
As proposed, Interpretation .01 to Rule 301 will require a Canadian
Clearing Member to maintain an initial ``early warning reserve'' as
determined in accordance with the Joint Regulatory Financial
Questionnaire and Report (``JRFQ&R'') of not less than $1,000,000
(U.S.) for the same period as previously required. The proposed
Interpretation .01 to Rule 302 will provide that the minimum net
capital requirement of a Canadian Clearing Member be the early warning
reserve as determined under the JRFQ&R in an amount not less than the
greater of $750,000 U.S.) or 2% of such Canadian Clearing Member's
total margin requirement as determined in accordance with the JRFQ&R.
Application of the early warning reserve as determined under the JRFQ&R
also will replace the use of the net free capital formula as determined
under the Supplementary Instructions in OCC Rules 303 and 304,
respectively, regarding early warning notice and restrictions on
distributions.
Finally, in connection with OCC's financial reporting requirements,
each Canadian Clearing Member will be required to file its JRFQ&R with
OCC on a monthly basis except as provided in the Interpretations to
Rule 306. The JRFQ&R replaces the Joint Industry Monthly Financial
Report previously required under the Interpretations to OCC's Financial
Reporting Rule.
OCC believes the proposed rule change is consistent with the
requirements of Section 17A of the Act and the rules and regulations
thereunder because the rule proposal will facilitate the prompt and
accurate clearance and settlement of securities transactions and will
assure the safeguarding of securities and funds which are in the
custody or control of the clearing agency or for which it is
responsible.
(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
No written comments relating to the proposed rule change 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
Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period (i) as the
Commission may designate up to ninety days of such date if it finds
such longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which OCC consents, the Commission will:
(a) By order approve such proposed rule change or
(b) Institute proceedings to determine whether the proposed rule
change should be disapproved.
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 Room, 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-95-11 and should be
submitted by October 4, 1995.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\6\
\6\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-22652 Filed 9-12-95; 8:45 am]
BILLING CODE 8010-01-M
