Citation: "79 FR 8777"
Document Number: "Release No. 34-71505; File No. SR-OCC-2014-02"
February 7, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 ("Act") /1/ and Rule 19b-4 thereunder, /2/ notice is hereby given that, on
FOOTNOTE 1 15 U.S.C. 78s(b)(1). END FOOTNOTE
FOOTNOTE 2 17 CFR 240.19b-4. END FOOTNOTE
FOOTNOTE 3 15 U.S.C. 87s(b)(3)(A). END FOOTNOTE
FOOTNOTE 4 17 CFR 240.19b-4(f)(6). As required under Rule 19b-4(f)(6)(iii), OCC provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the text of the proposed rule change, at least five business days prior to the date of filing of the proposed change, or such shorter time as designated by the Commission. END FOOTNOTE
I. Clearing Agency's Statement of the Terms of Substance of the Proposed Rule Change
This proposed rule change would accommodate the clearing of physically-settled single stock futures ("SSFs") for which delivery would occur on the first, rather than the third, business day after the maturity date of each such SSF.
II. Clearing Agency'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 these statements.
Proposed Changes to OCC's Rules
OCC is proposing to modify its rules to accommodate the clearing of a physically-settled SSF for which the delivery date would be the first business day following the maturity date ("T+1 SSFs") rather than the third business day following the maturity date ("T+3 SSFs"). Currently, OCC only clears T+3 SSFs. In order to accommodate this different delivery schedule, OCC proposes to amend the definition of delivery date in Rule 1302 for physically-settled stock futures as well as to modify references to the timing of the delivery date for security futures in the broker-to-broker settlement procedures in Rule 903.
Settlement of physically-settled SSFs is ordinarily effected through the
FOOTNOTE 5 In the event the security underlying a T+1 SSF is not eligible for physical delivery settlement at NSCC--for example, due to trading suspensions or delistings--OCC would instruct physical delivery settlement to occur on a broker-to-broker basis in accordance with the applicable provisions of Chapter IX of its Rules. As noted above, OCC proposes to modify Rule 903 to accommodate the one-day delivery date for T+1 SSFs. END FOOTNOTE
OCX's New Product and Amendment to the Clearing Agreement
OCX's New Product
OCX is proposing to list weekly maturity T+1 SSFs [sic]. /6/ OCX has de-listed its weekly maturity T+3 SSFs prior to the launch of weekly maturity T+1 SSFs, and will initially list weekly maturity T+1 SSFs on five to ten underlyings. /7/
FOOTNOTE 6 The Commission Staff notes that this filing (SR-OCC-2014-02) does not encompass any proposal by OCX's to list weekly maturity T+1 SSFs. END FOOTNOTE
FOOTNOTE 7 OCC understands that OCX's monthly maturity SSFs will continue to be T+3 SSFs. END FOOTNOTE
Amendment to the Clearing Agreement
OCC performs the clearing function for OCX pursuant to the Clearing Agreement, under which OCX agrees to indemnify and hold harmless OCC against any and all liabilities and costs in settlement in connection with any proceeding that arises out of, or is based upon, any violation or alleged violation by OCX of any law or governmental regulation. OCC and OCX have agreed to the proposed Amendment, which expands and clarifies this indemnification to include OCX's indemnification of OCC for claims that arise from any representations that OCX makes regarding the tax treatment of any futures product cleared pursuant to the Clearing Agreement, including SSFs.
OCC believes the additional indemnification described above is appropriate because OCX has designed its proposed weekly maturity T+1 SSFs with the intention that investors may enter into an "exchange for physical" transaction involving weekly maturity T+1 SSFs and receive the same tax treatment as parties to a stock loan transaction under Section 1058 of the Internal Revenue Code (the "Code"). While stock loan transactions involve the transfer of a stock, which potentially could trigger recognition of a gain or loss under the Code, under Code Section 1058 a transfer of securities under a stock lending arrangement satisfying certain conditions is generally not considered a recognition event. The Amendment is intended to provide for OCX's indemnification of OCC for any claims arising from the representations, if any, that OCX may make regarding the SSFs' eligibility for this tax treatment.
Prior to the launch of the T+1 SSFs, OCC will send to clearing members and also post on its public Web site an Information Memo describing the features of T+1 SSFs, as described above.
2. Statutory Basis
OCC believes the proposed rule change is consistent with Section 17A(b)(3)(F) of the Act, /8/ because it will modify OCC's Rules in a manner that will promote the prompt and accurate clearance and settlement of derivative agreements for which OCC is responsible. By amending its rules to accommodate T+1 SSFs, in addition to T+3 SSFs, OCC will be able to clear and facilitate settlement of SSFs that will settle more promptly than SSFs currently cleared by OCC, thereby reducing systemic risk. In addition, and also consistent with Section 17A(b)(3)(F) of the Act, the proposed rule change will continue to foster cooperation and coordination with persons engaged in the clearance and settlement of securities transactions /9/ because, as with T+3 SSFs, both OCC and NSCC will facilitate the settlement of T+1 SSFs. The proposed rule change is not inconsistent with the existing rules of OCC, including any other rules proposed to be amended.
FOOTNOTE 8 15 U.S.C. 78q-1(b)(3)(F). END FOOTNOTE
FOOTNOTE 9 Id. END FOOTNOTE
OCC does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. /10/ With respect to any burden on competition among clearing agencies, OCC is the only registered clearing agency that performs central counterparty services for the security futures markets.
FOOTNOTE 10 15 U.S.C. 78q-1(b)(3)(I). END FOOTNOTE
Changes to the rules of a clearing agency may have an impact on the participants in a clearing agency and the markets that the clearing agency serves. This proposed rule change primarily affects security futures clearing members and OCC believes that the proposed modifications would not unfairly inhibit access to OCC's services, or disadvantage or favor any particular user in relationship to another user, because the changes will affect all clearing members equally, T+1 SSFs will be cleared using existing systems and T+1 SSFs will be margined similarly to existing products.
For the foregoing reasons, OCC believes that the proposed rule change is in the public interest, would be consistent with the requirements of the Act applicable to clearing agencies, and would not impose a burden on competition that is unnecessary or inappropriate in furtherance of the purposes of the Act.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others
Written comments on the proposed rule change 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 Action
Because the foregoing rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed change has become effective pursuant to Section 19(b)(3)(A) of the Act /11/ and Rule 19b-4(f)(6)(iii) thereunder. /12/
FOOTNOTE 11 15 U.S.C 78s(b)(3)(A). END FOOTNOTE
FOOTNOTE 12 17 CFR 240.19b-4(f)(6)(iii). Notwithstanding the foregoing, OCC has indicated that implementation of this rule change will be delayed until this rule change is deemed certified under CFTC Regulation SEC 40.6. END FOOTNOTE
At any time within 60 days of the filing of such rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.
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. Comments may be submitted by any of the following methods:
* Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
* Send an email to firstname.lastname@example.org. Please include File Number SR-OCC-2014-02 on the subject line.
* Send paper comments in triplicate to
All submissions should refer to File Number SR-OCC-2014-02. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method of submission. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 Web site viewing and printing in the Commission's Public Reference Section,
All submissions should refer to File Number SR-OCC-2014-02 and should be submitted on or before
FOOTNOTE 13 17 CFR 200.30-3(a)(12). END FOOTNOTE
For the Commission, by the
Kevin M. O'Neill,
[FR Doc. 2014-03127 Filed 2-12-14;
BILLING CODE 8011-01-P
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