[Federal Register Volume 79, Number 231 (Tuesday, December 2, 2014)]
[Notices]
[Pages 71479-71481]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28353]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73685; File No. SR-OCC-2014-21]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change in Order To Permit OCC To 
Adjust the Size of Its Clearing Fund on an Intra-Month Basis

November 25, 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 November 13, 2014, The Options Clearing Corporation (``OCC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by OCC. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    This proposed rule change by OCC would delete the second sentence 
of Rule 1001(a), which OCC has temporarily suspended pursuant to 
emergency authority under Article IX, Section 14 of its By-Laws, which 
would permit OCC to adjust the size of its Clearing Fund on an intra-
month basis.

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.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    OCC is submitting this proposed rule change to permit OCC to 
collect additional financial resources from its clearing membership by 
increasing the size of its Clearing Fund on an intra-month basis when 
OCC determines such action should be taken so that the Clearing Fund is 
sufficient to protect OCC against potential loss under simulated 
default scenarios. OCC monitors the sufficiency of the Clearing Fund on 
a daily basis but may only readjust the size of the Clearing Fund on a 
monthly basis.\3\ During the ordinary course of daily monitoring 
activities on October 15, 2014, and as a result of increased volatility 
in the financial markets in October 2014, OCC determined that in the 
event of a default of its largest participant family, OCC's then 
current financial resources potentially could have fallen short of the 
total financial resources needed to cover the loss associated with the 
default.
---------------------------------------------------------------------------

    \3\ See OCC Rule 1001(a).
---------------------------------------------------------------------------

    To permit OCC to increase the size of its Clearing Fund prior to 
the next monthly resizing that was scheduled to take place on the first 
business day of November 2014, OCC's Executive Chairman, on October 15, 
2014, exercised certain emergency powers as set forth in Article IX, 
Section 14 of OCC's By-Laws.\4\ In emergency circumstances, and subject 
to certain conditions, Article IX, Section 14 permits OCC's Board of 
Directors, Executive Chairman, or President to waive or suspend its By-
Laws, Rules, policies and procedures, or any other rules issued by OCC 
or extend the time fixed thereby for the doing of any act or acts for 
up to thirty calendar days. Consistent with that authority, and 
following discussions with the Risk Committee of OCC's Board of 
Directors, the Executive Chairman waived the provisions in the second 
sentence of Rule 1001(a). OCC then filed an emergency notice with the 
Commission pursuant to Section 806(e)(2) of the Payment, Clearing, and 
Settlement

[[Page 71480]]

Supervision Act of 2010 \5\ and increased the Clearing Fund size for 
the remainder of October 2014 as otherwise provided for by the terms of 
Rule 1001(a).\6\ This was done to respond to the potential risk under 
prevailing market conditions that the Clearing Fund could be 
underfunded, which could have affected OCC's ability to provide 
services in a safe and sound manner.
---------------------------------------------------------------------------

    \4\ OCC also has submitted an advance notice that would provide 
greater detail concerning conditions under which OCC would resize 
the Clearing Fund intra-month. The change would permit intra-month 
resizing in the event that the five-day rolling average of projected 
draws are 150% or more of the Clearing Fund's then current size. See 
Securities Exchange Act Release No. 72804 (August 11, 2014), 79 FR 
48276 (August 15, 2014) (SR-OCC-2014-804).
    \5\ 12 U.S.C. 5465(e)(2).
    \6\ See Notice of Emergency Change to OCC's Procedures to Resize 
the Clearing Fund in Response to Market Conditions (SR-OCC-2014-
807), http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_14_807.pdf.
---------------------------------------------------------------------------

    Clearing members were informed of the action taken by the Executive 
Chairman and the amount of their additional Clearing Fund requirements, 
which were met without issue.\7\ As a result of these actions, OCC's 
Clearing Fund for October 2014 was increased by $1.8 billion. In 
continued reliance on the emergency rule waiver and the emergency 
notice, OCC set the November 2014 Clearing Fund size at $7.8 billion, 
which included an amount determined by OCC to be sufficient to protect 
OCC against loss under simulated default scenarios (i.e., $6 billion), 
plus a prudential margin of safety (the additional $1.8 billion 
collected in October).\8\ All required contributions to the November 
2014 Clearing Fund have been met by impacted clearing members.
---------------------------------------------------------------------------

    \7\ See Information Memorandum #35397, dated October 16, 2014, 
available on OCC's Web site, http://www.theocc.com/clearing/clearing-infomemos/infomemos1.jsp.
    \8\ See Information Memorandum #35507, dated October 31, 2014, 
available on OCC's Web site, http://www.theocc.com/clearing/clearing-infomemos/infomemos1.jsp.
---------------------------------------------------------------------------

    Under Article IX, Section 14(c) of OCC's By-Laws, OCC's waiver of 
the provisions of the second sentence of Rule 1001(a) is permitted to 
continue for no more than thirty calendar days unless OCC submits a 
proposed rule change to the Commission seeking approval of such 
waiver.\9\ Upon submission of a rule filing, the waiver may continue in 
effect until the Commission approves or disapproves the proposed rule 
change.\10\ Accordingly, OCC is now submitting this proposed rule 
change to delete the second sentence of Rule 1001(a) and, by the terms 
of Article IX, Section 14(c), to preserve the suspended effectiveness 
of the second sentence of Rule 1001(a) beyond thirty calendar days.
---------------------------------------------------------------------------

    \9\ See, OCC By-Laws, Article IX, Section 14(c). OCC will also 
submit this proposed rule change to the Commodity Futures Trading 
Commission.
    \10\ Id.
---------------------------------------------------------------------------

    OCC believes that this proposal is appropriate to permit OCC to 
resize the Clearing Fund more frequently than monthly and to determine 
its size in an amount sufficient to protect OCC from loss by relying on 
a broader range of sound risk management practices than only the 
average daily calculations under Rule 1001(a) that are performed during 
the preceding calendar month. OCC would use its authority to adjust the 
size of its Clearing Fund on an intra-month basis only to increase the 
size of the Clearing Fund where appropriate, not to decrease the size 
of the Clearing Fund.
2. Statutory Basis
    OCC believes the proposed rule change is consistent with Section 
17A(b)(3)(F) of the Act,\11\ and the rules and regulations thereunder, 
including Rule 17Ad-22(b)(3),\12\ because, by permitting OCC to resize 
the Clearing Fund intra-month and to determine its size in an amount 
sufficient to protect OCC from loss using a broader range of sound risk 
management practices than is currently required, the proposed 
modifications would assure the safeguarding of securities and funds 
which are in the custody or control of OCC or for which it is 
responsible, protect investors and the public interest and ensure that 
OCC has policies and procedures designed to maintain sufficient 
financial resources to withstand, at a minimum, a default by the 
participant family to which it has the largest exposure in extreme but 
plausible market conditions. The proposed rule change is not 
inconsistent with the existing rules of OCC, including any other rules 
proposed to be amended.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1(b)(3)(F).
    \12\ 17 CFR 240.17Ad-22(b)(3).
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    OCC does not believe that the proposed rule change would impose any 
burden on competition.\13\ OCC believes the proposed rule change would 
not unfairly inhibit access to OCC's services or disadvantage or favor 
any particular user in relationship to another user because OCC would 
continue to allocate the Clearing Fund as per current rules and without 
regard to any particular user or Clearing Member that makes Clearing 
Fund contributions. 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.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

(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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-OCC-2014-21 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-OCC-2014-21. 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. 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

[[Page 71481]]

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 Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of OCC and on OCC's 
Web site at http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_14_21.pdf. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-OCC-2014-21 and should be submitted on or before 
December 23, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Kevin M. O'Neill,
Deputy Secretary.
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 2014-28353 Filed 12-1-14; 8:45 am]
BILLING CODE 8011-01-P