[Federal Register: December 18, 2003 (Volume 68, Number 243)]
[Notices]
[Page 70494-70496]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18de03-35]

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COMMODITY FUTURES TRADING COMMISSION


In the Matter of Intermarket Clearing Corporation--Request for
Vacation From Designation as Derivatives Clearing Organization

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed order.

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SUMMARY: In response to a request by the Intermarket Clearing
Corporation (``ICC''), the Commodity Futures Trading Commission
(``Commission'' or

[[Page 70495]]

``CFTC'') is proposing to issue an order vacating ICC's designation as
a Derivatives Clearing Organization (``DCO'').

ADDRESSES: Interested persons should submit their views and comments to
Jean A. Webb, Secretary, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. In
addition, comments may be sent by facsimile transmission to facsimile
number (202) 418-5521, or by electronic mail to secretary@cftc.gov.
Reference should be made to ``ICC''.

DATES: Comments must be received by December 23, 2003.

FOR FURTHER INFORMATION CONTACT: R. Trabue Bland, Attorney, Division of
Clearing and Intermediary Oversight, Commodity Futures Trading
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington,
DC 20581. Telephone: (202) 418-5430. E-mail: tbland@cftc.gov.

SUPPLEMENTARY INFORMATION:

I. Statutory Background

    Section 5b(d) of the Commodity Exchange Act \1\ provides that DCOs
that clear contracts for boards of trade designated by the Commission
as contract markets prior to a certain date are deemed registered with
the Commission. Under section 1a(29)(C) of the Act, registered DCOs are
``registered entities.'' Section 7 of the Act \2\ provides that ``any
person that has been designated or registered as a registered entity in
the manner herein provided may have such designation or registration
vacated and set aside by giving notice to the Commission requesting
that its designation or registration as a registered entity be vacated,
which notice shall be served at least ninety days prior to the date
named therein as the date when vacation of designation or registration
shall take effect.'' ICC has requested that the vacation of its
registration take place before the expiration of the ninety-day period.
In response to the request, the Commission is proposing to exempt ICC
from the notice requirements of section 7 of the Act pursuant to
section 4(c) of the Act,\3\ which gives the Commission broad exemptive
authority and then vacate ICC's registration.
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    \1\ 7 U.S.C. 7a-1 (2003).
    \2\ 7 U.S.C. 11 (2003).
    \3\ 7 U.S.C. 6c (2003).
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II. Request for Vacation of Registration

A. Background

    By letter to the Division of Clearing Intermediary Oversight, the
ICC submitted a request for the vacation of registration.\4\ The ICC is
a registered DCO under section 5b(d) of the Act and thus a registered
entity as defined in section 1a(29)(C) of the Act. The ICC is a wholly
owned subsidiary of The Options Clearing Corporation (``OCC''), another
registered DCO. For the past several years, ICC has not engaged in any
clearing activities, and thus the OCC wishes to merge the ICC into the
OCC. At the completion of the merger, ICC will cease to exist as a
corporate entity. Therefore, the ICC requests that the Commission
vacate the registration of ICC as a DCO.
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    \4\ The letter, dated November 17, 2003, was sent to John
Lawton, Deputy Director and Chief Counsel of the Division of
Clearing and Intermediary Oversight.
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    Section 7 of the Act allows ``any person that has been designated
or registered as a registered entity in the manner herein provided may
have such designation or registration vacated and set aside by giving
notice to the Commission requesting that its designation or
registration as a registered entity be vacated, which notice shall be
served at least ninety days prior to the date named therein as the date
when vacation of designation or registration shall take effect.'' ICC
served notice to the Commission on November 17, 2003. However, the
merger of ICC and OCC will take place before the end of the calendar
year 2003, which will occur before the expiration of the ninety-day
notice requirement required by section 7 of the Act. Therefore, at
ICC's request, pursuant to section 4(c) of the Act, the Commission
proposes to exempt ICC from section 7's 90-day notice requirement.

B. Public Interest Considerations

    This proposed order is waiving the section 7 90-day notice
requirement pursuant to section 4(c) of the Act, which grants the
Commission broad exemptive authority. Section 4(c) of the Act provides
that, in order to promote responsible economic or financial innovation
and fair competition, the Commission ``may, by rule, regulation or
order, exempt any class of agreements, contracts or transactions,
including any person or class of persons offering, entering into,
rendering advice or rendering other services with respect to, the
agreement, contract, or transaction, from the contract market
designation requirement of section 4(a) of the Act, or any other
provision of the Act * * * if the Commission determines that the
exemption would be consistent with the public interest.'' \5\
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    \5\ See, e.g. 65 FR 77993 (December 13, 2000) (adopting final
rules pursuant to the 4(c) exemption).
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    As explained above, the ICC has not operated as a clearing entity
in a number of years. The merger of ICC into OCC will allow the OCC to
streamline its operations. The Commission believes that exempting ICC
from the 90-day requirement of section 7 is consistent with the public
interest, is consistent with the purposes of the Act and would have no
adverse effect on the ability of OCC to fulfill its self-regulatory
responsibilities imposed by the Act.

III. Conclusion

    After consideration of the ICC request, the Commission is proposing
to exempt ICC from the 90-day notice requirement of section 7 of the
Act. Furthermore, the Commission proposes to vacate the Intermarket
Clearing Corporation's registration as a derivatives clearing
organization upon completion of the merger between ICC and OCC.
    The Commission specifically invites comment on whether it should
vacate the registration of ICC and whether the Commission should exempt
ICC from the 90-day notice requirement of section 7. In addition to
issues specified above, the Commission welcomes comment on any aspect
of the proposed order.

IV. Cost-Benefit Analysis

    Section 15(a) of the Act requires the Commission to consider the
costs and benefits of its action before issuing a new regulation or
order under the Act. By its terms, section 15(a) does not require the
Commission to quantify the costs and benefits of a new regulation or to
determine whether the benefits of the proposed regulation outweigh its
costs. Rather, section 15(a) simply requires the Commission to
``consider the costs and benefits'' of its action.
    Section 15(a) further specifies that costs and benefits shall be
evaluated in light of five broad areas of market and public concern:
Protection of market participants and the public; efficiency,
competitiveness, and financial integrity of futures markets; price
discovery; sound risk management practices; and other public interest
considerations. Accordingly, the Commission could in its discretion
give greater weight to any one of the five enumerated areas and could
in its discretion determine that, notwithstanding its costs, a
particular rule was necessary or appropriate to protect the public
interest or to effectuate any of the provisions or to

[[Page 70496]]

accomplish any of the purposes of the Act.
    The proposed order is intended to vacate the registration of the
ICC, in order to allow the Options Clearing Corporation to merge with
the ICC. The Commission has considered the costs and benefits of the
order in light of the specific provisions of section 15(a) of the Act.

1. Protection of Market Participants and the Public

    The ICC does not provide any clearing services to any designated
contract markets. Accordingly, the proposed order should have no effect
on the Commission's ability to protect market participation and the
public.

2. Efficiency and Competition

    The proposed order is not expected to have an effect on efficiency
or competition.

3. Financial Integrity of Futures Markets and Price Discovery

    The proposed order should have no effect, from the standpoint of
imposing costs or creating benefits, on the financial integrity or
price discovery function of the commodity futures and options markets.

4. Sound Risk Management Practices

    The proposed order should have no effect on sound risk management
practices.

5. Other Public Interest Considerations

    The proposed order will have the positive effect of allowing the
OCC to streamline its operations.

V. Proposed Order

    Upon due consideration, and pursuant to its authority under section
7 of the Act to vacate the designation of a registered entity and
pursuant to its authority under section 4(c) of the Act to exempt ICC
from the requirement that notice be served within 90 days of vacation,
the Commission finds that:
    (1) The Intermarket Clearing Corporation (``ICC'') is currently
registered with the Commission as a derivatives clearing organization
(``DOC'') under section 5b(d) of the Commodity Exchange Act (the
``Act'');
    (2) ICC has not engaged in activity as a DCO for several years;
    (3) ICC proposes to merge into The Options Clearing Corporation,
which is also registered as a DCO;
    (4) Upon the effectiveness of that merger, ICC will cease to exist
as a corporate entity;
    (5) ICC has requested that the Commission terminate ICC's
registration as a DCO upon the effectiveness of that merger;
    (6) The merger of ICC and OCC will take place before the expiration
of the ninety day requirement of section 7 of the Act; and
    (7) Exempting ICC from the 90-day requirement of section 7 of the
Act will have no adverse effect on any of the regulatory or self-
regulatory responsibilities imposed by the Act and will be consistent
with the public interest.
    Therefore, the Commission hereby orders that ICC's designation as a
DCO be and hereby is vacated upon the effectiveness of that merger.

    Issued in Washington, DC, on December 12, 2003, by the
Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 03-31220 Filed 12-17-03; 8:45 am]

BILLING CODE 6351-01-M