Daily Rules, Proposed Rules, and Notices of the Federal Government
The purpose of this rule change is to expand OCC's internal cross-margining program to permit a pair of affiliated clearing members to establish a cross-margining account ("Internal Non-Proprietary Cross-Margining Account") in which securities and security futures that are cleared by OCC in its capacity as a securities clearing agency may be cross-margined with commodity futures and options on such futures that are cleared by OCC in its capacity as a derivatives clearing organization ("DCO") registered with the Commodity Futures Trading Commission ("CFTC") under the Commodity Exchange Act ("CEA").
In 2004, the CFTC and the Commission
OCC's current internal cross-margining program does not provide for internal cross-margining accounts to be carried jointly by a pair of affiliated clearing members because OCC did not believe in 2004 that there was any clearing member demand for such a service. Recently, however, OCC has learned that there is demand for such a service. Under OCC's current proposal, two affiliated clearing members will jointly maintain an Internal Non-Proprietary Cross-Margining Account. The clearing member that normally clears transactions in securities options would submit transactions in eligible securities options to the account for clearance, and the clearing member that normally clears transactions in futures
OCC is amending its current By-Laws and Rules governing internal cross-margining to create rules similar to the rules of the long-standing cross-margining program between OCC and CME, for example, for affiliated clearing members. In the case of the cross-margining programs between OCC and other DCOs, there are two accounts at the clearing level--one at each of the participating clearing organizations. In the internal cross-margining program, there is no need for two separate accounts, which would in any event be margined together and for which the affiliated clearing members would in any event be jointly and severally liable as they are for the two accounts in the case of the OCC-CME program.
Article VI, Section 25(b) of OCC's By-Laws currently requires clearing members to obtain a "Market Professional's Agreement for Internal Cross-Margining" from each market professional whose positions are included in an Internal Non-Proprietary Cross-Margining Account. OCC will use a modified form of this agreement for the account held jointly by a pair of affiliated clearing members.
As in the case of the existing internal cross-margining program, the Internal Non-Proprietary Cross-Margining Account would be treated as a segregated futures account under Section 4d of the CEA and, in accordance with Appendix B to Part 190 of the CFTC's regulations, would be separately segregated from the regular segregated futures account that an OCC clearing member may maintain under Article VI, Section 3(f) of OCC's By-Laws. In order to expand the internal cross-margining program to include accounts carried by pairs of affiliated clearing members, OCC has requested that the CFTC either issue a new or amended order under Section 4d of the CEA.
The Commission received one comment letter opposing the proposed rule change
The commenter in support of OCC's proposed rule change stated he supported the proposal because it "would harmonize the manner in which OCC conducts its internal cross-margining program with the manner in which existing cross-margining programs between OCC and other derivatives clearing organizations (
Section 17A(b)(3)(F) of the Act
On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act and in particular with the requirements of Section 17A of the Act