[Federal Register Volume 79, Number 133 (Friday, July 11, 2014)]
[Notices]
[Pages 40177-40182]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-16193]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72550; File No. SR-OCC-2014-802]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of No Objection to Advance Notice Filing Concerning the 
Consolidation of the Governance Committee and Nominating Committee Into 
a Single Committee, Changes to the Nominating Process for Directors, 
and Increasing the Number of Public Directors on The Options Clearing 
Corporation's Board of Directors

July 7, 2014.
    On May 8, 2014, The Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') advance 
notice SR-OCC-2014-802 (``Advance Notice'') pursuant to Section 
806(e)(1) of the Payment, Clearing, and Settlement Supervision Act of 
2010 (``Clearing Supervision Act'' or ``Title VIII'') \1\ and Rule 19b-
4(n)(1)(i) under the Securities Exchange Act of 1934 (``Exchange 
Act'').\2\ The Advance Notice was published for comment in the Federal 
Register on June 3, 2014.\3\ The Commission did not receive any 
comments on the Advance Notice publication. This publication serves as 
a notice of no objection to the Advance Notice.
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i). OCC is a designated financial 
market utility and is required to file advance notices with the 
Commission. See 12 U.S.C. 5465(e). OCC also filed the proposal 
contained in the Advance Notice as a proposed rule change under 
Section 19(b)(1) of the Exchange Act and Rule 19b-4 thereunder. See 
SR-OCC-2014-09. The Commission published notice of the proposed rule 
change in the Federal Register on May 30, 2014 and did not receive 
any comments on the proposal. See Exchange Act Release No. 34-72242 
(May 23, 2014), 79 FR 31166 (May 30, 2014) (SR-OCC-2014-09).
    \3\ Release No. 34-72268 (May 28, 2014), 79 FR 31998 (June 3, 
2014) (SR-OCC-2014-802) (``Notice'').
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I. Description of the Advance Notice

    OCC is proposing to: (i) amend its By-Laws and Governance Committee 
Charter to combine the current Nominating Committee (``NC'') and 
Governance Committee (``GC'') to establish a single Governance and 
Nominating Committee (``GNC''), (ii) make changes concerning OCC's 
nomination process for Directors, and (iii) increase the number of 
Public Directors on OCC's Board of Directors (``Board'') from three to 
five. The proposed modifications are based on recommendations from the 
GC in the course of carrying out its mandate of

[[Page 40178]]

reviewing the overall corporate governance of OCC and recommending 
improvements to the structure of OCC's Board. In part, the GC's 
recommendations stem from suggestions of an outside consultant that was 
retained to review and report on OCC's governance structure in 
relationship to industry governance practices. To conform to these 
proposed changes, OCC is also proposing to make certain edits to its 
Stockholders Agreement, Board of Directors Charter, and Fitness 
Standards for Directors.
    Currently, the GC operates pursuant to its own Charter.\4\ The NC 
is not a Board level Committee and does not operate pursuant to a 
charter; however, provisions in Article III of OCC's By-Laws prescribe 
certain aspects of the NC's structure and operation. OCC is proposing 
to apply to the GNC many of the existing provisions of the relevant By-
Laws and GC Charter that apply to the NC and GC. Where OCC is proposing 
amendments to the existing By-Laws and GC Charter, they are discussed 
below.
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    \4\ Securities Exchange Act Release Nos. 71030 (Dec. 11, 2013), 
78 FR 7612 (Dec. 16, 2013) (SR-OCC-2013-18); 71083 (Dec. 16, 2013), 
78 FR 77182 (Dec. 20, 2013) (SR-OCC-2013-807).
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    Certain provisions of Article III of OCC's By-Laws govern the role 
the NC plays in nominating persons as Member Directors \5\ on OCC's 
Board as well as the composition and structure of the NC itself. The NC 
is required to endeavor to achieve balanced representation in its 
Member Director and Non-Director Member nominees, giving due 
consideration to business activities and geographic distribution.
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    \5\ Under Article III, Section 2 every Member Director must be 
either a Clearing Member or a representative of a Clearing Member 
Organization.
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    Presently, the NC is composed of seven total members: one Public 
Director and six Non-Director Members.\6\ The Public Director member, 
who is nominated by the Executive Chairman with the approval of a 
majority of the Board, generally serves a three year term, unless she 
ceases to be a Public Director. The six Non-Director Members nominated 
by the NC and selected by OCC's stockholders are divided into two equal 
classes of three members, and the classes serve staggered two year 
terms.\7\ By comparison, the GC Charter requires the current GC to have 
no fewer than five directors and to include at least one Public 
Director, at least one Exchange Director, and at least one Member 
Director. It also provides that no Management Directors may serve on 
the Committee.
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    \6\ Under Sections 4 and 5 of Article III, a Non-Director Member 
of the NC must be a representative of a Clearing Member and no 
person associated with the same Clearing Member Organization as a 
member of the NC may be nominated by the NC for a position as a 
Member Director on the Board of Directors or a Non-Director Member 
of the NC for the ensuing year.
    \7\ This tiered structure eliminated the complete turnover of 
the members of the NC each year and fostered greater continuity 
among its elected members. Securities Exchange Act Release No. 29437 
(July 12, 1991), 56 FR 33319 (July 19, 1991) (SR-OCC-91-11).
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    OCC's Board currently has 19 members consisting of nine Member 
Directors, five Exchange Directors, three Public Directors, and two 
Management Directors.\8\ Based on recommendations from the GC in the 
course of review of OCC's overall corporate governance, OCC is 
proposing certain amendments detailed below to merge OCC's NC and GC 
into a single GNC and increase the number of Public Directors from 
three to five.
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    \8\ Public Directors may not be affiliated with any national 
securities exchange or national securities association or any broker 
or dealer in securities, and OCC's Executive Chairman and President, 
who are Management Directors. See OCC By-Laws Article III, Section 
6A.
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A. Proposed Amendments Common to the By-Laws and Other OCC Governance 
Documents

    Certain of the proposed changes would amend the existing By-Laws as 
well as other governance documents of OCC. For example, conforming 
edits would be made throughout the By-Laws and GC Charter to delete NC 
and GC references and in many cases those references would be replaced 
with references to the GNC.
1. GNC Composition
    The new GNC would be composed of a minimum of three total members: 
at least one Public Director, at least one Exchange Director and at 
least one Member Director. To reflect this change, OCC would eliminate 
in Section 4 of Article III of the By-Laws the requirement for six Non-
Director Members, add requirements for at least one Member Director and 
one Exchange Director, and modify the current requirement for one 
Public Director to instead require that there must be at least one 
Public Director. The proposed composition for the GNC already mirrors 
the existing composition specified in the GC Charter. Therefore, no 
changes are proposed to the current GC Charter in that respect, other 
than the elimination of the requirements that the GNC have no fewer 
than five directors. In its filing with the Commission, OCC stated that 
limitation would be eliminated with the goal of providing the Board 
with greater flexibility to determine the optimal size and composition 
of the GNC, so long as the composition also facilitates diverse 
representation by satisfying the proposed requirement for at least one 
GNC representative from each of the Member Director, Exchange Director, 
and Public Director categories. The prohibition on Management Directors 
serving on the GC would continue to apply to the GNC.
2. GNC Member Appointment Process and Term Limits
    The members of the GNC would be appointed annually by the Board 
from among certain Board members recommended by the GNC after 
consultation with OCC's Executive Chairman. GNC Members would serve at 
the pleasure of the Board. The GNC's Chairman (``GNC Chair'') would be 
designated from among the GNC's Public Directors. Provisions 
implementing these changes would be added to Section 4 of Article III 
of the By-Laws to entirely supplant the class and term limit structure 
and nominations process that currently applies to the NC and its Non-
Director Members and Public Director, and references to Non-Director 
Members would be removed from the By-Laws. Section II.A. The GC Charter 
would also be amended to reflect this structure for GNC nominations and 
appointments.
3. Number of Public Directors and Member Directors
    OCC is proposing to amend its By-Laws to increase the number of 
Public Directors on its Board from three to five. It is also making 
certain other changes related to the overall composition of the Board 
and the classification and term of office of Public Directors. The 
proposed change in the number of Public Directors from three to five 
would reconstitute OCC's Board with a total of 21 directors. OCC 
believes that, as indicated in its initial proposal to add Public 
Directors to its Board,\9\ Public Directors broaden the mix of 
viewpoints and business expertise that is represented on the Board. 
Accordingly, OCC believes that the input and expertise of two more 
Public Directors will further benefit OCC in the administration of its 
affairs in respect of the markets that it serves, and in the discharge 
of its obligations as a systemically important financial market 
utility.
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    \9\ Securities Exchange Act Release No. 30328 (January 31, 
1992), 57 FR 4784 (February 7, 1992) (SR-OCC-1992-02).
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    The proposed changes would remove a provision that, under certain

[[Page 40179]]

conditions, automatically adjusts the number of Member Directors 
serving on the Board. OCC's By-Laws currently require that if the 
aggregate number of Exchange Directors and Public Directors equals at 
least nine, the total number of Member Directors must be automatically 
adjusted to exceed that number by one.\10\ This provision would be 
removed.\11\ OCC believes that its removal will provide the Board with 
greater flexibility to determine its optimal composition. The proposed 
changes also remove a provision that reduces the number of Member 
Directors if the number is above nine and exceeds the sum of the number 
of Exchange Directors and the number of Public Directors by more than 
one, because the number of Member Directors would be fixed at nine.
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    \10\ OCC By-Laws Article III, Section 1.
    \11\ OCC also proposes to make corresponding changes to Article 
III, Section 3 of its By-Laws under which it would remove provisions 
that provide for the classification and term of office of Member 
Directors where the number of Member Directors increases based on 
the provision in Article III, Section 1 that OCC proposes to delete.
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    OCC is also proposing certain amendments to its Stockholders 
Agreement, Board of Directors Charter and Fitness Standards for 
Directors, Clearing Members and Others. In each case, conforming 
changes would be made to recognize the merger of the NC and GC into the 
GNC as a standing Committee of the Board and reflect the role it would 
play in OCC's director nomination process. The proposed modifications 
to the Board Charter and Fitness Standards would reflect the increase 
in the number of Public Directors serving on the Board from three to 
five and the removal of the provision that currently is designed under 
certain conditions to automatically adjust the number of Member 
Directors serving on the Board. The criteria specified in the Fitness 
Standards for Directors, Clearing Members and Others for use in 
considering individuals nominated to be Member Director would also be 
revised for consistency with the criteria proposed to be added to 
Article III, Section 5 of the By-Laws, discussed below, designed to 
achieve balanced Board representation.
    The Stockholders Agreement also contains proposed amendments to 
replace the term Chairman with Executive Chairman. This parallels a 
separate proposed amendment by OCC to implement this change in its By-
Laws and Rules, but a consolidated amendment to the Stockholders 
Agreement is proposed for ease of administration.

B. Proposed Amendments to By-Laws Only

    As explained in more detail below, certain of the proposed changes 
would require amendments only to OCC's existing By-Laws. One such 
example is that Sections 2 and 5 of Article III of the By-Laws would be 
amended to remove prohibitions against representation of the same 
Clearing Member Organization on the Board and the NC.\12\ This barrier 
would be eliminated since GNC members will be selected from among the 
members of the Board under the new approach.
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    \12\ A Clearing Member Organization is a Clearing Member that is 
a legal entity rather than a natural person.
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1. Balanced Representation
    The NC's responsibility to endeavor to achieve balanced 
representation among Clearing Members on the Board would be carried 
over to the GNC. Specifically, the GNC would be required to ensure that 
(1) not all of the Member Directors are from members having the largest 
volume of business with OCC during the prior year and (2) the mix of 
Member Directors includes members primarily engaged in agency trading 
on behalf of retail investors.
2. Nomination and Election Process
    The Board would appoint members to the GNC from among the Board's 
members who are recommended by the GNC. This change requires certain 
proposed modifications to the nomination and election process currently 
reflected in Article III, Section 5 of the By-Laws. Changes are also 
proposed that would change the deadlines for nominations of Member 
Directors by both the GNC and Clearing Members, and OCC would preserve 
the petition process by which Clearing Members may nominate additional 
candidates to be Member Directors on the Board. In recognition of the 
elimination of the concept of Non-Director Members, several provisions 
in Section 5 of Article III of the By-Laws addressing the ability of 
stockholders to elect or nominate Non-Director Members of the NC would 
be deleted. In relevant part, however, these provisions would be 
retained to the extent they apply to the ability of stockholders under 
certain conditions to nominate and elect Member Directors of the Board.
3. Public Directors
    Proposed changes to Section 6A of Article III of the By-Laws would 
require the GNC to nominate Public Directors for election by OCC's 
stockholders and to use OCC's fitness standards in making such 
nominations. Presently, OCC's Executive Chairman nominates Public 
Directors with Board approval. Changes are also proposed to help 
clarify the class structure and term limits of Public Directors that 
are independent of changes proposed to facilitate the formation of the 
GNC.\13\
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    \13\ These changes would specify that, aside from the Class II 
Public Director who was elected to the Board at the 2011 annual 
meeting, two other Public Directors were appointed to the Board 
prior to its 2013 annual meeting, one designated as a Class I Public 
Director and the other designated as a Class III Public Director. 
Generally, the three year terms for Public Directors with staggered 
expiration for each class would be preserved; however, an exception 
would be added for the initial Class I and III Public Directors.
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    The proposed changes to Article III, Section 6A of the By-Laws 
would also provide for the classification of the two new Public 
Directors. One of the new Public Directors will be designated as a 
Class I Public Director, and the other will be designated as a Class 
III Public Director. The proposed changes also establish the times at 
which the successors of the two new Public Directors will be elected. 
The successor of the new Public Director that is a Class III Public 
Director will be elected at the 2015 annual meeting of stockholders, 
and the successor of the new Public Director that is a Class I Public 
Director will be elected at the 2016 annual meeting.
4. Disqualifications and Filling Vacancies and Newly Created 
Directorships
    The disqualification provisions in Article III, Section 11 of the 
By-Laws would be revised to reflect that any determination to 
disqualify a director would be effective and result in a vacancy only 
if the GNC makes a recommendation for disqualification in addition to 
an affirmative vote for disqualification by a majority of the whole 
Board. The By-Laws currently provide that if a Member Director vacancy 
is filled by the Board, the person filling the vacancy will serve until 
the next scheduled election for the relevant class of Member Director 
and a successor is elected. However, if the term for that class of 
Member Director extends beyond the Board's next annual meeting the 
vacancy must be filled by a person who is recommended by the Nominating 
Committee. Proposed changes to these terms in respect of the GNC would 
require the Board in all cases to appoint a person who is recommended 
by the GNC. Similarly, Public Director vacancies would be required to 
be filled by the Board as generally provided for in Section 6A of

[[Page 40180]]

Article III of the By-Laws, including with regard to candidates being 
nominated by the GNC using OCC's fitness standards for directors. 
Provisions concerning filling vacancies with respect to the NC would be 
deleted, consistent with its elimination in favor of the GNC.
5. Ministerial Changes
    The proposed changes to Article III of the By-Laws also include 
certain ministerial changes. A reference to stockholder exchanges in 
the interpretation and policy to Section 6 would be replaced by the 
defined term Equity Exchanges, and a reference in Section 14 to notice 
by telegram would be changed to facsimile to reflect current means of 
communication.

C. Proposed Amendments to the GC Charter Only

    Certain of the proposed amendments relating to the creation of the 
GNC would apply only to OCC's existing GC Charter. These amendments are 
discussed below.
1. GNC Purpose
    The statement of purpose in the GC Charter would be revised to 
reflect the GNC's larger scope of responsibilities. The existing GC 
purpose of reviewing the overall corporate governance of OCC would be 
maintained, along with language clarifying that this review would be 
performed on a regular basis and that recommendations concerning Board 
improvements should be made when necessary. The GNC Charter would also 
provide that the GNC assists the Board in identifying, screening and 
reviewing individuals qualified to serve as directors and by 
recommending candidates to the Board for nomination for election at the 
annual meeting of stockholders or to fill vacancies. The GNC Charter 
would also specify that the GNC would develop and recommend to the 
Board, and oversee the implementation of, a Board Code of Conduct.
2. GNC Membership and Organization
    The requirement in the GC Charter that the GC hold four meetings 
annually would be modified to also permit the GNC to call additional 
meetings as it deems appropriate.\14\ The GC Charter requirement for 
regular reporting to the Board on Committee activities by the GC chair 
or a designee would be revised in favor of placing the reporting 
responsibility solely on the GNC Chair and requiring the GNC Chair to 
make timely reports to the Board on important issues discussed at GNC 
meetings. Taking into consideration certain pre-established guidelines 
in the GNC Charter, the GNC Chair would also be given responsibility 
for determining whether minutes should be recorded at any executive 
session. Aside from this exception for executive sessions, GNC meeting 
minutes would be required to be recorded. The GNC Charter would also 
create a position to be filled by an OCC officer who would assist the 
GNC and liaise between it and OCC's staff.
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    \14\ This would bring the Governance and Nominating Committee 
Charter in line with the Charters of OCC's other Board Committees.
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3. GNC Authority
    As in the case of the existing GC, the GNC would have authority to 
inquire into any matter relevant to its purpose and responsibilities in 
the course of carrying out its duties. The GNC Charter would further 
specify that in connection with any such inquiry the GNC would have 
access to all books, records, facilities and personnel of OCC. Unlike 
the existing GC Charter, the GNC Charter would not provide express 
authority for the GNC to rely on members of OCC's management for 
assistance. Instead, this relationship between the GNC and OCC's 
management would be more specifically addressed through the role of the 
newly created staff liaison position. Additional revisions to the GC 
Charter would also establish that the GNC Chair would not have 
discretion to take unilateral action on behalf of the Committee, even 
in special circumstances.
4. Board Composition
    Without limiting the GNC to particular activities, the GNC Charter 
would specify certain responsibilities meant to guide the GNC in 
achieving its purposes, including with respect to its role in the 
development of the Board's composition. The GNC's Charter would require 
it to pursue development of a Board comprised of individuals who have a 
reputation for integrity and represent diverse professional backgrounds 
as well as a broad spectrum of experience and expertise. The GNC 
Charter would also prescribe more detailed responsibilities designed to 
further this goal. For example, the GNC would be required to conduct 
periodic reviews of the composition of the Board against the goal, 
including whether the Board reflects the appropriate balance of types 
of directors, business specialization, technical skills, diversity and 
other qualities.\15\
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    \15\ The GNC would also review director conflicts of interest 
and the manner in which any such conflicts are to be monitored and 
resolved.
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    The GNC would be required to recommend policies and procedures to 
the Board for identifying and reviewing Board nominee candidates, and 
it would implement and oversee the effectiveness of those policies, 
including with regard to criteria for Board nominees. Using criteria 
approved by the Board, the GNC would identify, screen and review 
persons who it determines are qualified to serve as directors. This 
process would also extend to incumbent directors concerning any 
potential re-nomination. In all cases, the GNC would only recommend 
candidates to the Board for nomination for election after consulting 
with OCC's Executive Chairman.
    In the event that a sitting director offers to resign because of a 
change in occupation or business association, the GNC would be 
responsible for reviewing whether continued service is appropriate and 
making a recommendation of any action, consistent with OCC's By-Laws 
and Rules, that should be taken by the Board. The GNC would also 
undertake periodic reviews of term limits for certain directors and 
recommend changes to these limits where appropriate.
5. Governance Practices
    The GNC would have responsibility for reviewing the Board's Charter 
for consistency with regulatory requirements, transparency of the 
governance process and other sound governance practices. Currently, 
this is a GC function, and certain GC Charter amendments are proposed 
to help further detail the GNC's review responsibilities. These include 
a general responsibility to recommend changes, as the GNC deems 
appropriate, to the Board concerning Committee Charters. This would 
include the GNC Charter, which the GNC would be required to review 
annually.\16\ In connection with a periodic review of Board Committee 
structure, the GNC would advise the Board regarding related matters of 
structure, operations and charters. Furthermore, and in each case after 
consultation with OCC's Executive Chairman, the GNC would recommend to 
the Board for its approval certain directors for Committee service as 
well as for assignment as Committee chair persons.
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    \16\ As part of the annual review, the GNC would also submit the 
GNC Charter to the Board for re-approval, including any changes the 
GNC deems advisable.
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    The GNC would develop and recommend to the Board the annual process 
used by the Board and Board Committees for self-evaluation of their

[[Page 40181]]

role and performance in the governance of OCC. The GNC would also be 
responsible for coordinating and providing oversight of that process. 
Corporate governance principles applicable to OCC would be developed by 
the GNC for recommendation to the Board, and the GNC would review them 
at least once a year.
6. Other Proposed GC Charter Amendments
    The GNC Charter would require the GNC to regularly evaluate its 
performance and the performance of its individual members and provide 
results of such assessments to the Board. It would also require an 
annual report to be prepared by the GNC and delivered to the Board 
regarding the GNC's activities for the preceding year, and the GNC 
would be required to include a statement that it carried out all of its 
GNC Charter responsibilities. In addition to such responsibilities, the 
GNC would generally be empowered to perform any other duties that it 
deems necessary or appropriate and consistent with the GNC Charter or 
as may otherwise be further delegated to it by the Board.

II. Discussion and Commission Findings

    Although Title VIII does not specify a standard of review for an 
advance notice, the Commission believes that the stated purpose of 
Title VIII is instructive.\17\ The stated purpose of Title VIII is to 
mitigate systemic risk in the financial system and promote financial 
stability by, among other things, promoting uniform risk management 
standards for systemically-important financial market utilities 
(``FMUs'') and strengthening the liquidity of systemically important 
FMUs.\18\
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    \17\ See 12 U.S.C. 5461(b).
    \18\ Id.
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    Section 805(a)(2) of the Clearing Supervision Act \19\ authorizes 
the Commission to prescribe risk management standards for the payment, 
clearing, and settlement activities of designated clearing entities and 
financial institutions engaged in designated activities for which it is 
the supervisory agency or the appropriate financial regulator. Section 
805(b) of the Clearing Supervision Act \20\ states that the objectives 
and principles for the risk management standards prescribed under 
Section 805(a) shall be to:
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    \19\ 12 U.S.C. 5464(a)(2).
    \20\ 12 U.S.C. 5464(b).
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     Promote robust risk management;
     promote safety and soundness;
     reduce systemic risks; and
     support the stability of the broader financial system.
    The Commission has adopted risk management standards under Section 
805(a)(2) of the Clearing Supervision Act \21\ (``Clearing Agency 
Standards'').\22\ The Clearing Agency Standards became effective on 
January 2, 2013 and require registered clearing agencies that perform 
central counterparty (``CCP'') services to establish, implement, 
maintain, and enforce written policies and procedures that are 
reasonably designed to meet certain minimum requirements for their 
operations and risk management practices on an ongoing basis.\23\ As 
such, it is appropriate for the Commission to review advance notices 
against these Clearing Agency Standards and the objectives and 
principles of these risk management standards as described in Section 
805(b) of the Clearing Supervision Act.\24\
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    \21\ 12 U.S.C. 5464(a)(2).
    \22\ Rule 17Ad-22, 17 CFR 240.17Ad-22. Exchange Act Release No. 
68080 (October 22, 2012), 77 FR 66220 (November 2, 2012) (S7-08-11).
    \23\ The Clearing Agency Standards are substantially similar to 
the risk management standards established by the Board of Governors 
of the Federal Reserve System (``Federal Reserve'') governing the 
operations of designated DFMUs that are not clearing entities and 
financial institutions engaged in designated activities for which 
the Commission or the Commodity Futures Trading Commission is the 
Supervisory Agency. See Financial Market Utilities, 77 FR 45907 
(August 2, 2012).
    \24\ 12 U.S.C. 5464(b).
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    The proposed changes in the Advance Notice may result in changes 
that will improve OCC's overall risk management process, and therefore 
may promote robust risk management. A Board-level committee likely will 
be in a better position to make well-informed nomination decisions. 
Members of the GNC will themselves be members of the Board, and, thus, 
have personal insight and experience into the types of experience and 
credentials that would be useful on the Board and be better able to 
assess the current needs of the Board. A Board comprised of Directors 
with more relevant skills and credentials that are better able to 
evaluate OCC's risks may promote more robust risk management.
    Adding two Public Directors to the Board and eliminating the 
provision which ensured the number of Member Directors would outnumber 
the combined number of Exchange and Public Directors by one may also 
result in improved risk management processes and therefore may promote 
robust risk management. Additional emphasis on Public Directors may 
result in more independent views on the risks OCC presents being 
brought to the Board's attention for discussion and management of those 
risks. Moreover, the combined GNC and the additional emphasis on Public 
Directors should also aid in identifying any risks and inefficiencies 
in the current governance structure and making recommendations to the 
full Board to help mitigate those risks and eliminate any such 
inefficiencies.
    The GNC's periodic reviews of the composition of the Board, 
including whether the Board reflects the appropriate balance of types 
of directors, business specialization, technical skills, diversity and 
other qualities, may help the GNC achieve balanced representation and a 
diversity among Member Directors. Maintaining balanced representation 
and having diversity among Member Directors may help the Board better 
evaluate and identify the risks OCC presents, and improve overall risk 
management.
    In addition, the changes proposed in the Advance Notice may reduce 
OCC's contribution to systemic risk because they enhance the 
transparency of OCC's governance arrangements. The Commission believes 
that providing additional insight into OCC's governance arrangements 
may have this effect by allowing Members and other market participants 
to better assess risks at OCC, to comment on OCC's operations, and 
otherwise to advocate for improved overall risk management.
    Commission Rule 17Ad-22(d)(8), adopted as part of Clearing Agency 
Standards, requires that a registered clearing agency establish, 
implement, maintain, and enforce written policies and procedures 
reasonably designed to ``have governance arrangements that are clear 
and transparent to fulfill the public interest requirements in Section 
17A of the Exchange Act applicable to clearing agencies, to support the 
objectives of owners and participants, and to promote the effectiveness 
of the clearing agency's risk management procedures.'' \25\ The 
Commission believes that the changes proposed in this advance notice 
should help OCC fulfill these transparency requirements.
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    \25\ 17 CFR 240.17Ad-22(d)(8).
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III. Conclusion

    It is therefore noticed, pursuant to Section 806(e)(1)(I) of the 
Clearing Supervision Act,\26\ that the Commission does not object to 
advance notice proposal (SR-OCC-2014-802) and that OCC is authorized to 
implement the proposal as of the date of this notice or the date of an 
order by the Commission

[[Page 40182]]

approving a proposed rule change that reflects rule changes that are 
consistent with this advance notice proposal (SR-OCC-2014-09), 
whichever is later.
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    \26\ 12 U.S.C. 5465(e)(1)(I).

    By the Commission.
Kevin O'Neill,
Deputy Secretary.
[FR Doc. 2014-16193 Filed 7-10-14; 8:45 am]
BILLING CODE 8011-01-P