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Option Exercise and Assignment Loan Program

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Under this program, a Participant may use securities pledged at The Depository Trust Company (DTC) to meet the Options Clearing Corporation (OCC) margin requirement on these positions as collateral for a loan from an approved lender. The cash proceeds of this loan will then be credited to the Participant’s settlement account at the National Securities Clearing Corporation (NSCC).

OCC, DTC, and NSCC have jointly created the loan program to minimize the collateral and financing requirements of common OCC and NSCC member firms by synchronizing the release of OCC’s guarantee obligation with satisfaction of the member’s obligation to NSCC.

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The Options Clearing Corporation Disbursement (OCCD) function has been developed by DTC and OCC to allow Participants to negotiate loans with pledgee Participants using securities pledged to OCC for margin purposes as collateral. The OCCD function allows Participants to submit collateralization requests that require approval from the pledgee and OCC. The OCCD function allows pledgee Participants to review Participants’ collateralization requests and either approve or reject them. Only pledgee-approved collateralization requests appear on OCC’s approval screen in the OCCD function. Pledgee approved collateralization requests can then be approved or rejected by OCC. Only collateralization requests approved by both the pledgee and OCC are processed by DTC.

An OCC approved collateralization request generates a Demand of Collateral (DCL) transaction (activity code 58) that moves the securities from the requesting Participant’s pledge account (014) to an OCC control account. Once the DCL transaction completes, a valued pledge (activity code 54) will be processed from the OCC control account to the pledgee designated by the Participant in the collateralization request. The valued pledge credit received into the OCC control account is then applied to the Participant’s NSCC balance. Participants will see these credits as activity code 35 (OCC Collateral Money) in NSCC’s settlement system.

Note - Although Participants will see the DCL transaction from their pledge account to the OCC control account in DTC’s Activity Inquiry function, they will not be able to view the valued pledge from the OCC control account to their pledgee in the Activity Inquiry function. However, Participants can determine if the valued pledge portion of the collateralization request has been completed in DTC’s system by viewing the status of the collateralization request in the Browse option of OCCD. A “Made” status indicates that the valued pledge has completed in DTC’s system. In addition, Participants will see the credits from the valued pledges in their NSCC balances after 2:30 p.m. eastern time.

Once DTC settlement is final (all net-net debits have been received) and DTC releases its risk management controls, the securities are moved from the OCC control account’s pledge position to the Participant’s pledge position (14 account). The Participant and the pledgee will see this movement as a Participant Swing (activity code 7) in the Activity Inquiry function.

DTC will charge the same fee for processed OCC collateralization requests as it does for valued pledges.

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Pledgees should be aware that pledge returns of valued pledges from OCC control accounts will not be permitted systemically. Requests for pledge returns to OCC control accounts should be directed to DTC’s Settlement Department. However, pledgees will be permitted to process pledge returns using the normal pledge return process once the securities are swung from the OCC control account to the Participant after DTC releases its risk management controls at approximately 5:00 p.m. eastern time.

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In the event that a valued pledge from an OCC control account recycles to the pledgee and does not complete (drops) by DTC’s valued recycle cutoff at approximately 3:10 p.m. eastern time, DTC will reverse the associated demand of collateral transaction. The demand of collateral reversal will, in effect, “repledge” the Participant’s securities back to OCC. The demand of collateral reversal will appear as an adjustment in the Activity Inquiry function.

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Participants wishing to utilize the OCC Collateralization procedures must first contact a representative from OCC’s Risk Management Department. In addition to contacting OCC, interested Participants must contact their DTC Relationship Manager and request access to the OCCD function and the OCCA sub-function. Pledgees planning to accept OCC collateralization requests must also contact their Relationship Managers and request access to the OCCD function and the OCCP sub-function.

Participants and pledgees interested in participating in OCC’s Collateralization service should request eligibility for their respective OCCD functions and sub-functions with their Relationship Managers at least two days prior to the actual day they anticipate using the service.

Note- All collateralization requests by Participants must be approved by OCC. Therefore, OCC must be contacted before a request is submitted through the OCCD function.