Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change To Amend OCC's By-Laws and Rules To Merge the Currently Separated Equity and Non-Equity Elements of the OCC's Clearing Fund

[Federal Register Volume 64, Number 235 (Wednesday, December 8, 1999)]
[Notices]
[Pages 68712-68713]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-31785]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42195; File No. SR-OCC-99-09]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change To Amend OCC's By-Laws and 
Rules To Merge the Currently Separated Equity and Non-Equity Elements 
of the OCC's Clearing Fund

    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act''), notice is hereby given that on September 24, 1999, The 
Options Clearing Corporation (``OCC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which have been prepared 
primarily by OCC. The Commission is publishing this notice to solicit 
comments from interested persons on the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The proposed rule change revises OCC's By-Laws and Rules to merge 
the equity and non-equity elements of the OCC's clearing fund into one 
clearing fund with contributions based on total margin requirements. 
The minimum contribution of the combined clearing fund will be 
$150,000.

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.\2\
---------------------------------------------------------------------------

    \2\ The Commission has modified the text of the summaries 
prepared by OCC.
---------------------------------------------------------------------------

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The purpose of the proposed rule change is to merge the currently 
separated equity and non-equity elements of the OCC's clearing fund, 
referred to in OCC's By-Laws and Rules as the ``stock clearing fund'' 
and the ``non-equity securities clearing fund,'' into one combined 
clearing fund with contributions based on total margin requirements. 
The minimum contribution of the combined clearing fund will be 
$150,000. The rule change also changes the language of Article VIII of 
the By-Laws and Chapter 10 of the Rules and attempts to conform the 
language of Article VIII, Section 5(a) more closely to that of Article 
VIII, Section 1, without changing the substance of those provisions.
    OCC believes that for some time the division of the clearing fund 
into two elements has served no useful purpose. In 1982, when OCC first 
began clearing non-equity products, including treasury, currency, and 
stock index options, OCC instituted a separate non-equity element to 
the clearing fund to limit the impact of a member default in one 
product base, either equity or non-equity, on members trading only the 
other product base. The element of the clearing fund applicable to the 
product(s) involved in the default would be utilized first; only after 
that element was exhausted would the other element be used. Beginning 
in 1986, with the introduction of the Theoretical Intermarket Margin 
System (``TIMS'') for non-equity products, some margin offsets were 
allowed between equity and non-equity products. Such offsets further 
expanded following the implementation of TIMS for equity products in 
1991. The blurring of the distinction between equity and non-equity 
margin requirements and the integration of OCC's equity and non-equity 
systems in general, has reached a level such that clearing members only 
have a single margin requirement, which is used to determine the size 
of each element of the clearing fund each month.
    According to OCC, almost all clearing members already contribute to 
both the equity and non-equity elements of the clearing fund and thus 
are subject to the $75,000 minimum contribution for each element. For 
those members, a merger of the two elements into one combined clearing 
fund would cause no aggregate change in the size of their clearing fund 
contribution. Five clearing members clear either only equity or only 
non-equity products and therefore contribute to only one element of the 
clearing fund. three of these members, however, would not have their 
contributions affected by the proposed merger because their current 
activity puts their contributions well above the proposed $150,000 
minimum. Thus, the merger of the two elements into one clearing fund 
would not materially change the overall size of the clearing fund and 
would only have a minor impact on a small number of members.
    Consistent with Article VIII, Section 2 of OCC's By-Laws, OCC will 
issue a memorandum to its clearing members at least five business days 
prior to the effective date of the rule change advising them of the 
change in the minimum contribution and advising them of their ability 
to withdraw from membership should they choose not to make the required 
clearing fund contribution.
    OCC believes that the proposed rule change is consistent with 
Section 17A of the Act of promoting the prompt and accurate clearance 
and settlement of securities transactions because the rule change 
eliminates the unnecessary subdivision of the clearing fund.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    OCC does not believe that the proposed rule change would impose any 
burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    Written comments were not and are not intended to be solicited with 
respect to the proposed rule change, and none have been received.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Act

    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.

[[Page 68713]]

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. 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-
0609. 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 also will be available 
for inspection and copying at the principal office of OCC. All 
submissions should refer to File No. SR-OCC-99-9 and should be 
submitted by December 29, 1999.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\3\
---------------------------------------------------------------------------

    \3\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jonathan G. Katz,
Secretary.
[FR Doc. 99-31785 Filed 12-7-99; 8:45 am]
BILLING CODE 8010-01-M