[Federal Register Volume 81, Number 149 (Wednesday, August 3, 2016)]
[Notices]
[Pages 51220-51237]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18320]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78438; File No. SR-OCC-2016-002]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change Concerning Enhancements to The 
Options Clearing Corporation's Governance Arrangements

July 28, 2016.
    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 July 15, 2016, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    This proposed rule change by The Options Clearing Corporation 
(``OCC'') concerns modifications and enhancements to OCC's governance 
arrangements. OCC is proposing to amend its Certificate of 
Incorporation, By-Laws, and Board of Directors (``Board'') Charter to 
require that only one Management Director serve on OCC's Board (as 
opposed to the current requirement of two Management Directors). 
Moreover, OCC is proposing to amend its By-Laws and Rules to delete all 
references to the title and responsibilities of the Management Vice 
Chairman. In addition, OCC is proposing to amend its By-Laws to: (i) 
Provide that the Compensation and Performance Committee (``CPC'') \3\ 
and

[[Page 51221]]

the Audit Committee (``AC'') each will be chaired by a Public Director; 
(ii) modify the composition requirements of the Risk Committee (``RC'') 
to, among other things, provide that an Exchange Director be a member 
of the Risk Committee; (iii) provide for action by the OCC Board in the 
nomination process for Member Directors and Public Directors; (iv) 
eliminate term limits for Public Directors; and (v) consolidate By-Law 
sections that identify the committees of the Board into a single 
section of the By-Laws. Finally, OCC is proposing amendments to the 
Charters of the Board and the AC, CPC, Governance and Nominating 
Committee (``GNC''), RC, and Technology Committee (``TC'') 
(collectively, ``Board Committees'' or ``Committees'' and each a 
``Board Committee'' or ``Committee'') that stem from scheduled reviews 
of such documents.
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    \3\ As described below, the Performance Committee would be 
renamed as the Compensation and Performance Committee.
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    All capitalized terms not defined herein have the same meaning as 
set forth in the OCC By-Laws and Rules.

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
    The purpose of this proposed rule change is to implement a number 
of modifications and enhancements to OCC's governance arrangements. 
Specifically, as a result of the Board's continual evaluation of OCC's 
governance arrangements, OCC is proposing to change the composition 
requirements of its Board to require that one Management Director 
serves on OCC's Board (as opposed to two) and to eliminate the role of 
Management Vice Chairman to provide more clarity and transparency 
regarding the status of these roles at OCC. In addition, OCC is 
proposing to amend its By-Laws to, among other things: (i) Provide that 
the CPC and the AC each will be chaired by a Public Director to 
underscore and reinforce the independence of those committees and align 
with governance best practices and practices of other self-regulatory 
organizations; (ii) modify the composition requirements of the RC, 
including to provide that an Exchange Director be a member of the RC to 
provide the RC with additional expertise and unique perspective on 
matters such as market risk and special risks arising from trading 
practices and strategies, and new products; (iii) provide for Board 
action in the nomination process for Member Directors and Public 
Directors of OCC's Board to ensure an appropriate level of oversight 
and participation by the Board in determining its own composition and 
that the composition of the Board fulfils its needs for particular 
skills and qualifications; (iv) eliminate term limits for Public 
Directors in the interest of ensuring that OCC has access to the full 
benefits of a Public Director's understanding and learning, with 
respect to OCC and the markets OCC serves, as that knowledge develops 
over time; and (v) consolidate By-Laws sections that identify the 
committees of the Board into a single section of the By-Laws to provide 
more clarity and transparency to OCC's participants regarding the 
existence and composition of such Committees.
    OCC is also proposing amendments to the Charters of OCC's Board, 
AC, CPC, GNC, RC, and TC that stem from scheduled reviews of such 
documents. The proposed amendments to the Board and Committee Charters 
are designed, in general, to provide more clarity and transparency 
around the oversight functions and responsibilities of the Board and 
each of its Committees and provide for a more comprehensive and robust 
oversight framework for the financial reporting, audit and compliance, 
compensation and performance, governance and nomination, risk, and 
technology functions at OCC.
    The proposed amendments to OCC's Certificate of Incorporation, By-
Laws, Rules, Board and Committee Charters, and Amended and Restated 
Stockholders Agreement are described in detail below.
Proposed Amendments to OCC's Certificate of Incorporation
    OCC is proposing to amend its Certificate of Incorporation to state 
that the number of Management Directors serving on OCC's Board shall be 
such number as shall be fixed by or pursuant to OCC's By-Laws.\4\ The 
purpose of this proposed change is ultimately to require that only one 
Management Director shall serve on OCC's Board as OCC is also proposing 
to amend its By-Laws to state that one Management Director shall serve 
on OCC's Board (as discussed in more detail below). The proposed 
amendments would also ensure consistency between all of OCC's governing 
documents concerning the number of Management Directors on OCC's Board. 
OCC's Certificate of Incorporation and By-Laws currently state that 
OCC's Board shall be composed of Members Directors, Exchange Directors, 
Public Directors, and two Management Directors. Recently, however, 
there has been a vacancy for one Management Director position and only 
one Management Director is serving on the Board at this time.\5\ OCC's 
Board continually evaluates the leadership structure at OCC, including 
the appropriate number of Management Directors for OCC's Board, and in 
light of recent experience since the vacancy of the second Management 
Director position, believes that amending the Board composition to 
require one Management Director on OCC's Board would continue to 
provide an appropriate level of management representation in the Board-
level oversight of OCC. The Executive Chairman, as Management Director, 
would continue to represent management's viewpoint on OCC's Board. 
Moreover, the Board has access to OCC's management team, which ensures 
that the Board has continued access to management's perspectives on the 
business and affairs of OCC. Furthermore, OCC notes that, prior to the 
addition of a second Management Director seat in 2013, OCC has 
historically had only one Management Director serving on its Board.\6\ 
Accordingly, OCC believes that the

[[Page 51222]]

proposed amendments would continue to provide for prudent governance 
arrangements at OCC. OCC is also proposing conforming changes to the 
Board Charter as described below.
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    \4\ The number of Management Directors required to serve on 
OCC's Board would be stipulated by Article III, Section 1 of OCC's 
By-Laws. Article XI, Section 1 of OCC's By-Laws states that Article 
III of the By-Laws may not be amended by action of the Board without 
the approval of the holders of all of the outstanding Common Stock 
of the Corporation entitled to vote thereon. Accordingly, any 
proposed change in the number of Management Directors required to 
serve on OCC's Board would continue to be subject to stockholder 
approval.
    \5\ In 2014, the Commission approved a proposed rule change 
providing that OCC's President would not be considered a Management 
Director and, therefore, only one Management Director (the Executive 
Chairman) currently serves on the Board. See Securities Exchange Act 
Release No. 73785 (December 8, 2014), 79 FR 73915 (December 12, 
2014) (SR-OCC-2014-18).
    \6\ In 2013, the Commission approved a proposed rule change by 
OCC to provide for the separation of the powers and duties combined 
in the office of OCC's Chairman of the Board of Directors into two 
offices, Chairman and President, and to create an additional 
directorship to be occupied by the President. See Securities 
Exchange Act Release No. 34-[sic]70076 (July 30, 2013), 78 FR 47449 
(August 5, 2013) (SR-OCC-2013-09).
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Proposed Amendments to OCC's By-Laws and Rules
Number of Management Directors on OCC's Board
    OCC is proposing to amend Article III, Section 1 of its By-Laws to 
state that only one Management Director will serve on OCC's Board (as 
opposed to the current requirement of two). As noted above, OCC's Board 
continually evaluates the leadership structure at OCC, including the 
appropriate number of Management Directors for OCC's Board, and 
believes that amending the Board composition to require one Management 
Director on OCC's Board would continue to provide an appropriate level 
of management representation in the Board-level oversight of OCC. OCC 
is also proposing conforming changes to Article III, Sections 10 
(Resignations) and 12 (Filling of Vacancies and Newly Created 
Directorships) of the By-Laws to reflect that only one Management 
Director, the Executive Chairman, would be serving on OCC's Board.
Elimination of Management Vice Chairman Role
    OCC proposes to amend its By-Laws and Rules to eliminate the role 
of Management Vice Chairman. The office of Management Vice Chairman has 
been vacant for a number of years and has not been included in the 
Board's current discussions regarding management succession planning. 
During that time, the thought process surrounding leadership roles at 
OCC has evolved. OCC believes that any of the responsibilities of the 
Management Vice Chairman are already appropriately handled by other 
officers of OCC, primarily the Executive Chairman and President (or 
where applicable, other officers such as the Secretary or Directors 
such as the Member Vice Chairman) \7\ and as a result, this role is 
being eliminated from OCC's By-Laws and Rules. OCC believes the 
proposed amendments would more accurately reflect the current state of 
affairs regarding the office, ensure consistency across all of OCC's 
governing documents, and provide more clarity and transparency 
regarding OCC's intended governance arrangements.
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    \7\ For example, under proposed revisions to Article IV, Section 
7, the Member Vice Chairman would preside over Board and stockholder 
meetings in the absence of the Executive Chairman.
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    In particular, OCC is proposing to amend (i) By-Laws Article 
I.A.(13); Article II, Section 4; Article III, Section 15; Article IV; 
Article V, Sections 1 and 3; Article VI, Section 17; Article VIII, 
Section 5; Article IX, Sections 12 and 14 and (ii) Rules 305, 309, 
309A, 505, 609A, 801, 804, 805, 901, 903, 1104, 1106, 1309, 1402, 1405, 
1604, 1610, 2104, 2110, and 2408 to remove all references to and 
responsibilities of the role of Management Vice Chairman.
Committee Descriptions and Other Conforming By-Law Amendments
    OCC is proposing to amend Article III of its By-Laws in order to 
provide descriptions of the AC, CPC, GNC, RC, and TC in a single 
section of the By-Laws. Specifically, OCC is proposing to consolidate 
existing Article III, Section 4 (which concerns the GNC) and existing 
Article III, Section 9 (which concerns the RC,\8\ the TC,\9\ and the 
Board's ability to designate persons to serve on Committees, 
generally), into Article III, Section 4 and add descriptions of the CPC 
and AC to Article III, Section 4 of its By-Laws in order to provide a 
more transparent, centralized, and unified statement describing all of 
the Board Committees. In addition, OCC proposes to make a non-
substantive drafting clarification to existing language being relocated 
from Article III, Section 9 to the introductory section of Article III, 
Section 4 to clarify that the Board is required to designate persons to 
serve on the specifically enumerated Committees therein.
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    \8\ The description of the RC in proposed Article III, Section 
4(d) of the By-Laws would reflect changes to OCC's existing policy 
regarding the composition of the RC in order to conform the By-Law 
provision to changes recommended as a result of the annual review of 
the RC Charter (as discussed below). See infra note 15, and related 
text.
    \9\ The Commission recently approved a proposed rule change by 
OCC to adopt a Technology Committee of the Board of Directors. See 
Securities Exchange Act Release No. 77042 (February 3, 2016), 81 FR 
6915 (February 9, 2016) (SR-OCC-2015-018).
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    The proposed description of the AC would reflect existing 
requirements in the AC and GNC Charters that, on an annual basis, the 
Board of Directors shall appoint an AC selected from among the 
directors recommended by the then-constituted GNC after consultation 
with the Executive Chairman and shall serve at the pleasure of the 
Board, provided that no Management Director may serve on the Audit 
Committee. The proposed description of the AC would also include a new 
requirement that the chairman of the AC shall be designated by the 
Board from among the Public Director member(s) of the Committee (as 
described further below).
    The proposed description of the CPC would reflect the existing 
requirement that, on an annual basis, the Board of Directors shall 
appoint a CPC and that the CPC generally consists of the Executive 
Chairman, the Member Vice Chairman, and at least one Public 
Director.\10\ Consistent with the preceding sentence, all of the CPC 
members will be selected by the Board from among the directors 
recommended by the then-constituted GNC after consultation with the 
Executive Chairman and shall serve at the pleasure of the Board. The 
proposed description would also include a new requirement that the 
chairman of the CPC shall be designated by the Board from among the 
Public Director member(s) of the Committee (as described further 
below). OCC believes that consolidating the descriptions of all Board 
Committees into Article III, Section 4 of its By-Laws would provide 
more clarity and transparency to OCC's participants regarding the 
existence and composition of such Committees.
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    \10\ The proposed description of the CPC in the By-Laws includes 
the general requirement that CPC shall include the Executive 
Chairman, the Member Vice Chairman, and at least one Public 
Director. The proposed description is not intended to change the 
more specific CPC composition requirements in the CPC Charter that 
the committee consist of a Public Director chair, the Executive 
Chairman, the Member Vice Chairman, and three or more other 
directors appointed annually by the Board.
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    OCC is proposing amendments to Article IV, Section 1 of the By-Laws 
to provide that the Board will elect the Executive Chairman and Vice 
Chairman of the Board upon the nomination of the GNC and also elect the 
President of OCC (in addition to the Secretary and Treasurer). In 
addition, OCC proposes amendments to Article IV, Section 7 to delete a 
requirement that the Member Vice Chairman preside at the meetings of 
any Committee of the Board of Directors charged with the responsibility 
for evaluating the performance and compensation of officers as the CPC 
would now be chaired by a Public Director. OCC also proposes amendments 
to clarify that the Member Vice Chairman would preside over meetings of 
the Board and stockholders in the absence of the Executive Chairman 
because the President cannot preside over meetings of the Board.\11\
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    \11\ See OCC's By-Laws Article IV, Section 8.
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Compensation and Performance Committee and Audit Committee Independence
    In addition to the proposed changes described above, OCC is also 
proposing

[[Page 51223]]

changes to the Board Committee descriptions in proposed Article III, 
Sections 4(a) and (b) of the By-Laws to reflect the requirement that a 
Public Director \12\ chair the AC and the CPC. The GNC recently 
performed a review of governance trends and best practices among self-
regulatory organizations as they relate to board-level compensation 
committees.\13\ The review was undertaken in order to further the 
Board's oversight of employee compensation and benefits, recognizing 
that the CPC primarily functions as a compensation committee (although 
it also has broad oversight responsibilities for financial and budget 
matters). The review highlighted that having the CPC chaired by a 
Public Director (rather than a Member Director,\14\ which is currently 
the case) would be more consistent with governance best practices and 
practices of other self-regulatory organizations. Moreover, such a 
change would ensure that compensation and related decisions are 
undertaken in a way that is likely to support objective judgment and 
independence unfettered by potential conflicts that may exist by having 
a Member Director chair the CPC given OCC's self-regulatory 
responsibilities. The Board agreed with the GNC's recommendation.
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    \12\ See Article III Section 6A of OCC's By-Laws regarding 
Public Directors.
    \13\ The GNC Charter provides, in relevant part, that the 
purpose of the GNC is to review on a regular basis the overall 
corporate governance of OCC and recommend improvements to the Board 
when necessary.
    \14\ See OCC's By-Laws Article III, Section 3 and Section 5.
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    Additionally, the GNC reviewed proposed regulatory standards for 
audit committees of self-regulatory organizations that would require 
such audit committees to be independent based on facts determined by a 
given self-regulatory organization's board of directors. Such review 
caused the GNC to recommend to the Board that a Public Director should 
be required to chair the AC in order to align with governance best 
practices for audit committees and to support the objectivity of the 
AC. The Board agreed with the GNC's recommendation. Moreover, and in 
furtherance of the goal of AC independence, any currently serving 
Management Director(s) would not be eligible to serve on the AC.
Risk Committee Membership
    OCC is proposing to amend Article III of its By-Laws to modify the 
composition requirements of OCC's RC. Existing Article III, Section 9 
of OCC's By-Laws currently requires that the RC shall consist of the 
Executive Chairman, the Member Vice Chairman, at least three other 
Member Directors selected on a basis that shall not discriminate 
against any Exchange, and one or more Public Directors. OCC is 
proposing to replace this description of the RC with new Article III, 
Section 4(d), which would relocate and modify the RC composition 
requirements to (i) provide that an Exchange Director \15\ be a member 
of the RC and (ii) require that at least one Member Director serve on 
the RC (as opposed to the current minimum requirement of four Member 
Directors) and (iii) remove a specific requirement that one of the 
Member Directors on the RC be the Member Vice Chairman.
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    \15\ See Article III Section 6 of OCC's By-Laws regarding 
Exchange Directors.
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    The GNC reviewed the membership composition of the RC and 
determined that one Exchange Director should be a member of the RC. 
Historically, the RC did not include Exchange Directors because Member 
Directors were much more directly concerned with the risk management 
and membership function of OCC due to the mutualization of risk among 
Clearing Members as well as the fact that Clearing Members are 
responsible for the contribution of margin and clearing fund deposits. 
Given the evolution of the markets for which OCC provides clearance and 
settlement services, OCC now believes that an Exchange Director should 
be a member of the RC. Exchange Directors have expertise and unique 
perspective on matters such as market risk as well as sophistication as 
to special risks arising from trading practices, strategies and new 
products.
    In addition, the GNC recommended, and the Board approved, a 
reduction in the minimum composition requirement for Member Directors 
on the RC to allow for greater flexibility in the selection of 
Directors with the requisite skills and expertise to serve on the RC. 
OCC believes that Member Director participation on the RC is vital and 
would therefore continue to require that at least one Member Director 
serves on the RC. OCC also believes, however, that it is necessary and 
appropriate to maintain flexibility to ensure that the RC is comprised 
of those Directors that have the appropriate mix of knowledge and 
expertise necessary to provide for the prudent oversight of risk 
matters at OCC.
Nomination Process for Member Directors and Public Directors
    OCC is proposing to make amendments to Article III, Sections 5 and 
6A; Article IV, Section 1; and adopt Amendment No. 1 to Amended and 
Restated Stockholders Agreement to provide for Board action in the 
nomination process for Member Directors, Public Directors, the 
Executive Chairman, and Member Vice Chairman in conformance with the 
process set forth in the GNC Charter.\16\ Currently, Board action is 
not a part of the annual election process for Member Directors and 
Public Directors as described in the By-Laws and the Amended and 
Restated Stockholders Agreement. The proposed amendments would provide 
that such persons would be nominated by the GNC for purposes of the 
Board's annual election process and then confirmed by the Board. OCC 
believes that the proposed rule change would help ensure an appropriate 
level of oversight and participation by the full Board in determining 
its own composition and that the composition of the Board fulfils its 
needs for particular skills and qualifications.
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    \16\ The GNC Charter had already been reviewed by OCC in 2014 
and approved by the Commission. See Securities Exchange Act Release 
No. 72564 (July 8, 2014), 79 FR 40824 (July 14, 2014) (SR-OCC-2014-
09).
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Elimination of Public Director Term Limits
    OCC is proposing to amend Article III, Section 6A of its By-Laws, 
Section IV.1. of the GNC Charter, and Section II.D. of the Board 
Charter in order to remove term limits for Public Directors. OCC 
believes it is appropriate to eliminate term limits for Public 
Directors because the learning curve for directors of OCC is 
significant. It is generally recognized that it often takes several 
years for directors who come from outside the industry to achieve the 
particularized degree of knowledge and understanding about the business 
that is necessary to provide significant value. Additionally, the GNC 
reviewed OCC's term limit policy for Public Directors in light of 
benchmark data and governance trends and determined that the 
elimination of term limits for Public Directors is consistent with 
governance arrangements at large corporations.\17\ Therefore, OCC is 
proposing to remove its term limits for Public Directors in the 
interest of assuring that OCC has access to the full benefit of a 
Public Director's understanding and learning, with respect to OCC and 
the markets OCC serves, as it develops over time.
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    \17\ According to the 2014 Spence Stuart Board Index, among S&P 
500 companies, very few boards (only 3%--or 16 companies) specify 
director term limits. Of these, none imposes a term limit that is 
less than 10 years. The most common term limit is 15 years, and the 
longest term limit is 30 years.

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[[Page 51224]]

Proposed Amendments to Board and Board Committee Charters
Amendments to the Board Charter and the Fitness Standards
    OCC proposes amendments to the Board Charter that are intended to: 
(i) Harmonize the description of the Board's obligations in the Board 
Charter with the description of the Board's obligations in OCC's By-
Laws and Rules; (ii) better align the Board Charter with the Board's 
Corporate Governance Principles and By-Laws; (iii) reflect recent 
changes involving Board Committee Charters; (iv) in general, restate 
the Board's oversight responsibilities in a manner designed to provide 
for prudent governance arrangements in light of OCC's role as a 
systemically important financial market utility; and (v) make certain 
non-substantive administrative changes to the Charter. The proposed 
amendments are described in more detail below.
Membership and Organization
    OCC proposes amendments to Section II of the Board Charter 
regarding membership and organization requirements to reflect the 
elimination of the role of Management Vice Chairman as described above. 
As a result, in the event that the Executive Chairman is absent or 
disabled, the Member Vice Chairman shall preside over meetings of the 
Board. OCC also proposes amendments that would allow for additional 
meetings of the Board being called as the Board deems appropriate (such 
meetings shall be called by the Executive Chairman or his designee) and 
to specify that the Executive Chairman shall consult with the Corporate 
Secretary (in addition to other directors or officers) when 
establishing Board meeting agendas.
    OCC also proposes amendments intended to strengthen the Board's 
governance framework and practices surrounding meetings in executive 
sessions by providing added structure regarding the convening and 
attendance of executive sessions and promoting the enhanced recordation 
of important meeting events and discussions. In particular, the 
proposed amendments would: (i) Require that the Board meet in executive 
session at each regular meeting of the Board; (ii) allow the Board to 
determine who will participate in such sessions; (iii) provide for the 
exclusion of management, invited guests, and individual directors from 
executive sessions where discussions may involve certain sensitive 
matters or conflicts of interest; and (iv) require the Board to select 
a Director to chair executive sessions in the absence of the Executive 
Chairman. The proposed amendments would also require that Board meeting 
minutes reflect, at least in summary fashion, the general matters 
discussed in an executive session. Specifically, the chair of the 
executive session would determine whether separate minutes of the 
executive sessions are to be recorded as well as determine the level of 
detail to be included in such minutes, provided that Board meeting 
minutes must, at a minimum, reflect that an executive session was 
convened and broadly describe the topic(s) discussed.
    In addition, OCC proposes to amend the Board Charter to state that 
the Board is comprised of one Management Director, rather than two 
Management Directors, in conformance with the proposed Certificate of 
Incorporation and By-Laws changes described above. The Board Charter 
would also be amended to reflect an increase in the number of Public 
Directors serving on the Board from three to five.\18\
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    \18\ The Commission approved the increase in the minimum number 
of Public Directors on OCC's Board from three to five in July 2014. 
See Securities Exchange Act Release No. 72564 (July 8, 2014), 79 FR 
40824 (July 14, 2014) (SR-OCC-2014-09).
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    Additionally, in order to achieve a balanced representation on the 
Board among Member Directors, OCC proposes amendments to the Board 
Charter to state that the considerations involved in determining the 
nomination of Member Directors should include the volume of business 
transacted with OCC during the prior year and the mix of Member 
Directors that are primarily engaged in agency trading on behalf of 
retail customers or individual investors. The proposed amendments 
reinforce the existing requirement in Article III, Section 5 of OCC's 
By-Laws that the GNC shall endeavor to achieve balanced representation 
among Clearing Members on the Board of Directors to assure that: (i) 
Not all Member Directors are representatives of the largest Clearing 
Member Organizations based on the prior year's volume, and (ii) the mix 
of Member Directors includes representatives of Clearing Member 
Organizations that are primarily engaged in agency trading on behalf of 
retail customers or individual investors. OCC proposes to remove 
geographic location of Clearing Members as a factor for consideration 
as OCC believes that location is no longer a significant consideration 
given modern technology and the evolution of the industry.
    OCC also proposes to add language to the Board Charter to 
discourage Directors from attending meetings of the Board by telephone 
as currently provided in the Code of Conduct for OCC Directors. 
Attendance by telephone would be generally discouraged because OCC 
believes the Board may be less likely to have the kind of interaction 
that leads to fully informed discussions and decisions than if Board 
members were to meet in person.
Responsibilities of the Board
    OCC proposes amendments to the Board Charter that are primarily 
intended to: (i) Harmonize the description of the Board's obligations 
in the Board Charter with the description of the Board's obligations in 
OCC's By-Laws and Rules as well as the Board's Corporate Governance 
Principles \19\ and (ii) restate the Board's oversight responsibilities 
in a manner designed to provide for prudent governance arrangements in 
light of OCC's position as a designated systemically important 
financial market utility.
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    \19\ The purpose of the Board's Corporate Governance Principles 
is to assist OCC's Board in monitoring the effectiveness of policy 
and decision making at the Board and management levels. In 
particular, the Board's Corporate Governance Principles are meant to 
address OCC's obligations as a systemically important financial 
market utility to have policies and procedures in place that promote 
sound governance, including those policies and procedures identified 
in the Principles for Financial Market Infrastructures published by 
the Committee on Payment and Settlement Systems and the 
International Organization of Securities Commissions.
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    In cases when an obligation of the Board is expressed in both the 
Board Charter and OCC's By-Laws and Rules, OCC is proposing to remove 
the obligation from the Board Charter. These charter provisions would 
be replaced by a general statement that the Board would perform those 
functions as the Board believes appropriate or necessary, or as 
otherwise prescribed by rule or regulation, including OCC's By-Laws and 
Rules.\20\
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    \20\ The proposed change would remove from the Board Charter 
some of the more specific obligations of the Board as already set 
forth in the By-Laws and Rules in favor of a more general statement 
intended to reflect that the Board would perform such functions as 
necessary or appropriate under OCC's Rules, By-Laws and other rules 
or regulations. The Board Charter provisions in question can 
generally be identified by footnote citations to By-Law provisions 
included in the Board Charter in Exhibit 5C.
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    OCC also proposes amendments to Section IV of the Board Charter 
designed to provide for prudent governance arrangements emphasizing 
that the Board's oversight role should operate in a manner consistent 
with its responsibilities as a designated systemically important 
financial market utility. Specifically, OCC proposes to amend the 
Charter to state that the responsibilities of the Board include: (i) 
Overseeing management's activities in managing, operating and 
developing

[[Page 51225]]

OCC and evaluating OCC management's performance in executing its 
responsibilities; (ii) selecting, overseeing and, where appropriate, 
replacing the Executive Chairman of the Board and the President, 
providing counsel and advice to the Executive Chairman and the 
President as well as oversight of the performance of each such officer 
and of OCC in order to evaluate whether the business is being 
appropriately managed; (iii) setting expectations about the tone and 
ethical culture of OCC, and reviewing management's efforts to instill 
an appropriate tone and culture throughout OCC; (iv) providing 
oversight of risk assessment and risk management monitoring processes, 
including with respect to systemic risk and reviewing risk tolerances 
submitted to the Board for approval by its Risk Committee; (v) 
performing an annual self-evaluation of its performance, the 
performance of its Committees, the performance of individual directors 
and Committee members; and evaluating the Corporate Governance 
Principles and Fitness Standards; (vi) reviewing the amount of 
compensation for the Board's Public Directors (i.e., directors who are 
not affiliated with any national securities exchange or national 
securities association or with any broker or dealer) as well as 
reviewing the annual study and evaluation of OCC's system of internal 
accounting controls; (vii) providing oversight of internal and external 
audit processes and financial reporting, including approving major 
changes in auditing and accounting principles and practices; and (viii) 
oversight of OCC's information technology strategy, infrastructure, 
resources and risks.
    In addition, OCC proposes to modify certain existing Board Charter 
provisions related to the responsibilities of the Board. Specifically, 
OCC propose [sic] amendments that would specify that, in addition to 
overseeing major capital expenditures and approving the annual budget 
and corporate plan, the Board is responsible for reviewing and 
approving OCC's financial objectives and strategies, capital plan and 
capital structure, OCC's fee structure, and major corporate plans and 
actions, as well as periodically reviewing the types and amounts of 
insurance coverage available in light of OCC's clearing operations. OCC 
also proposes amendments to specify that the Board's responsibility for 
fostering OCC's compliance with applicable laws and regulations 
includes compliance with banking, securities and corporation laws and 
other applicable regulatory guidance and standards. Additionally, OCC 
proposes amendments to provisions related to the oversight of 
succession planning and executive compensation to state more 
specifically that the Board is responsible for evaluating and fixing 
the compensation of the Executive Chairman and President; overseeing 
succession planning, human resource programs, and talent management 
processes; and overseeing the development and design of employee 
compensation, incentive and benefit programs.\21\ The proposed 
amendments would also remove a statement that OCC's Board is 
responsible for overseeing OCC's processes and framework for assessing, 
managing and monitoring strategic, financial and operational risk as 
this function is performed by the RC (as reflected in its Charter) with 
oversight from the Board.
---------------------------------------------------------------------------

    \21\ OCC notes that a deleted reference to the evaluation of 
senior management is now covered by point (i) described in the 
paragraph above.
---------------------------------------------------------------------------

    OCC is also proposing non-substantive organizational changes in 
Section IV of the Board Charter. Specifically, OCC proposes amendments 
that would combine provisions related to the Board's responsibilities 
for approving and overseeing OCC's business strategies and monitoring 
OCC's performance of clearance and settlement services.
Other Conforming, Administrative and Non-Substantive Changes
    In addition to the changes described above, certain of the proposed 
amendments to the Board Charter are meant to address non-substantive, 
administrative issues. For example, certain amendments are being 
proposed to Section III of the Board Charter to reflect the adoption of 
the TC \22\ the GNC, and renaming of the Performance Committee to the 
CPC, as described herein. In addition OCC is proposing to amend Section 
I of the Board Charter to more accurately state that the Board is 
responsible for providing direction to and overseeing the conduct of 
the affairs of OCC (as opposed to just managing the business and 
affairs) and to remove an unnecessarily specific list of OCC 
stakeholders. OCC also proposes amendments that would require an annual 
(as opposed to the less specific ``periodic'') review of the Board 
Charter, including the Corporate Governance Principles and Fitness 
Standards.
---------------------------------------------------------------------------

    \22\ See supra note 9.
---------------------------------------------------------------------------

Fitness Standards for Directors, Clearing Members and Others
    OCC also proposes to amend the Fitness Standards to remove 
descriptions of the categories of directors represented on the Board 
and the process by which they are nominated for Board service as these 
descriptions are already maintained in Article III of OCC's By-Laws and 
the relevant Committee Charters. Eliminating these redundant 
descriptions in the Fitness Standards would promote efficiency and 
clarity by eliminating the need to ensure consistency of the same 
information across multiple documents. The proposed amendments would 
also underscore that the Fitness Standards are intended to facilitate 
the performance of OCC's role as a systemically important financial 
market utility.
Common Amendments to Each Committee Charter
    OCC is proposing to make conforming amendments to the Committee 
Charters as a result of the Commission approving certain changes to the 
GNC Charter.\23\ Specifically, OCC proposes to amend each Committee 
Charter to confirm that each Board Committee has access to all books, 
records, facilities and personnel of OCC in carrying out the respective 
Board Committee's purpose and responsibilities. This amendment to the 
Committee Charters would make explicit a longstanding principle under 
which each Committee has operated. Additionally, references to the 
``Governance Committee'' in each Committee Charter would be changed to 
the ``Governance and Nominating Committee'' to reflect the formation of 
the GNC.
---------------------------------------------------------------------------

    \23\ See supra note 16.
---------------------------------------------------------------------------

    Furthermore, OCC proposes to delete a provision from each Committee 
Charter which granted the Chair of each Board Committee the authority 
to act on behalf of the respective Board Committee in situations in 
which immediate action was required and convening a Board Committee 
meeting was impractical. Although this provision also required each 
Chair to report such actions to the respective Board Committee for 
ratification as soon as practicable, OCC believes that removing this 
provision is appropriate from a governance perspective because it 
supports deliberation and action by a Board Committee as a whole rather 
than action by a Chair. In addition, historically, each Board Committee 
has been able to convene when necessary.
    In addition, OCC is proposing a number of common changes across its 
Committee Charters to strengthen OCC's Board Committee governance 
framework and practices surrounding

[[Page 51226]]

meetings in executive sessions by providing added structure regarding 
the convening and attendance of executive sessions and promoting the 
enhanced recordation of important meeting events and discussions. 
Specifically, each Committee Charter would be amended to: (i) Require 
that each Committee meet in executive session at each regular meeting 
of the Committee; (ii) allow the Committee to determine who will 
participate in such sessions; and (iii) provide for the exclusion of 
management, invited guests, and individual directors from executive 
sessions where discussions may involve certain sensitive matters or 
conflicts of interest. The proposed amendments would also require that 
each Committee's meeting minutes reflect, at least in summary fashion, 
the general matters discussed in an executive session. In particular, 
the Chair (or Acting Chair) would determine whether separate minutes of 
the executive sessions are to be recorded as well as determine the 
level of detail to be included in such minutes, provided that Committee 
meeting minutes must, at a minimum, reflect that an executive session 
was convened and broadly describe the topic(s) discussed.
    Additionally, the Committee Charters would be amended to permit any 
Board Committee to engage specialists or advisors to assist it in 
carrying out its delegated responsibilities without prior Board 
approval. Generally speaking, Committees must obtain pre-approval from 
the Board to hire advisors. While not universal, OCC's understanding is 
that public company board committees frequently are authorized to 
engage advisors without board pre-approval at the company's expense to 
preserve autonomy and independence and to assist them in the execution 
of their responsibilities as deemed necessary. Under the proposed 
amendments, each Committee's engagement of an advisor, including fees 
and expenses, would be referenced in its annual report to the Board. 
These proposed amendments are intended to foster Committee independence 
as well as timely Committee access to expertise relevant to the 
discharge of its delegated responsibilities while preserving Board 
oversight via the application of existing reporting mechanisms.
    OCC is also proposing amendments to its Committee Charters to 
specify that that [sic] each Committee should evaluate its and its 
individual member's performance on an annual basis (as opposed to 
regularly) to provide more clarity and specificity regarding the timing 
of each Committee's self-assessment process.
Amendments to the Audit Committee Charter
    OCC proposes amendments to the AC Charter intended to, among other 
things: (i) Reinforce the independence of the AC; (ii) more accurately 
memorialize and expand upon the activities of the AC with respect to 
the oversight of OCC's financial reporting processes and enhance the 
independence and objectivity in connection therewith; and (iii) in 
general, provide more explicit descriptions of the AC's functions and 
responsibilities. The proposed changes are described in more detail 
below.
Purpose, Membership and Authority
    OCC proposes changes to Sections I, II and III of the AC Charter 
related to the purpose, membership and organization, and authority of 
the AC. In Section I of the AC Charter, OCC proposes to make 
organizational changes to certain statements regarding the AC's 
responsibility to serve as an independent and objective party to 
oversee OCC's system of internal control, compliance environment and 
processes. These changes are non-substantive in nature. OCC is also 
proposing to make various non-substantive clarifying and textual 
changes in Section I, including, for example, replacing the term 
``independent accountants'' with ``external auditors'' and replacing 
``Corporation'' with ``OCC,'' which would extend throughout the entire 
AC Charter. The proposed amendments to change ``independent 
accountants'' to ``external auditors'' are not intended to signify a 
change in roles or responsibilities but to more accurately state that 
the activities described in the AC Charter as being performed by 
``independent accountants'' are actually performed by a party acting in 
its capacity as OCC's ``external auditor.''
    OCC also proposes amendments to Section II of the AC Charter that 
are intended to reinforce the independence of the AC. Specifically, the 
amendments provide that all members of the AC be independent from OCC's 
management, as determined by the Board from time to time, and that the 
Chair of the AC be a Public Director.\24\ Additionally OCC proposes an 
amendment that would clarify that the Management Director, as described 
in Section 7 of Article III of OCC's By-Laws, is ineligible to serve on 
the AC.\25\ OCC also proposes to revise the AC Charter to state that 
the AC will meet regularly, and no less than once annually (as opposed 
to ``at least annually''), with management, OCC's Chief Financial 
Officer, Chief Audit Executive (``CAE'') and Chief Compliance Officer 
(``CCO'') in executive sessions to discuss certain private matters. The 
purpose of this change is to signify that these meetings and 
interactions occur more than once per year. Section II of the AC 
Charter would also be amended to explicitly provide the authority for 
the CAE and CCO to communicate directly with the Chair of the AC, with 
respect to any of the responsibilities of the AC, outside of regular 
meetings to further underscore their independence. Further, OCC 
proposes an amendment to Section II of the AC Charter under which 
attendance at an AC meeting by telephone is discouraged. Attendance by 
telephone would be generally discouraged because OCC believes the 
Committee may be less likely to have the kind of interaction that leads 
to fully informed discussions and decisions than if Committee members 
were to meet in person.
---------------------------------------------------------------------------

    \24\ The change concerning the AC Chair would conform the AC 
Charter to proposed Article III, Section 4(a) of OCC's By-Laws, as 
described above.
    \25\ In the event OCC has a Non-Executive Chairman, such 
individual would not be considered a Management Director.
---------------------------------------------------------------------------

    OCC also proposes to amend the AC Charter to provide that the AC 
shall make such reports to the Board as deemed necessary or advisable. 
This proposed change would promote effective communication between the 
AC and the Board is in line with requirements in other Committee 
Charters.
    OCC proposes to amend Section III of the AC Charter to confirm that 
the AC's authority to hire advisors includes the authority to approve 
the related fee and retention terms.\26\ In addition to more accurately 
reflecting current Committee practice, it would conform the AC charter 
to OCC's other Committee Charters (i.e., the CPC, GNC, RC and TC 
Charters) with respect their authority to hire advisors and approve 
related fees and retention terms. As noted above, each of OCC's 
Committee Charters would be amended to permit any Board Committee to 
engage specialists or advisors to assist it in carrying out its 
delegated responsibilities without prior Board approval in order to 
foster Committee independence as well as timely access to relevant 
expertise from outside specialists or advisors. The proposed amendments 
would clarify that this authority also extends to the approval of 
related fee and retention terms.
---------------------------------------------------------------------------

    \26\ OCC is also proposing to remove a statement concerning the 
AC's authority to obtain advice from independent counsel, 
accountants or others as such statement would be replaced by a 
broader expression of the AC's authority to hire advisors.

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

[[Page 51227]]

Functions and Responsibilities
    OCC also proposes a number of amendments to Section IV of the AC 
Charter intended to reinforce and expand upon the activities of the AC 
with respect to the oversight of OCC's financial reporting processes, 
to enhance the independence and objectivity in connection therewith, 
and to more explicitly describe the AC's functions and 
responsibilities. These proposed amendments are described in more 
detail below.
Oversight of External Auditor and Financial Reporting
    OCC proposes amendments to the AC Charter regarding the AC's 
oversight of financial reporting and external auditors. The proposed 
amendments to the AC Charter are intended to more accurately 
memorialize and expand upon the AC's role with respect to financial 
reporting at OCC. With respect to financial statements and financial 
reporting, the proposed amendments explicitly state that the AC is 
responsible for: (i) Discussing with management and external auditors 
OCC's audited and unaudited financial statements; (ii) upon 
management's recommendation, approving OCC's financial statements after 
reviewing with management and external auditors prior to issuance; \27\ 
(iii) reviewing with management, external auditors and OCC's Internal 
Audit Department significant financial reporting issues and judgments 
made in connection with the preparation of financial statements, 
critical accounting policies and estimates, any major issues regarding 
accounting principles and financial statement presentation and the 
effect of regulatory and accounting initiatives; (iv) approving 
material changes to OCC's accounting policies; (v) resolving 
disagreements between management and external auditors regarding 
financial reporting; and (vi) reviewing and discussing with external 
auditors any audit problems or difficulties, and management's response 
thereto.
---------------------------------------------------------------------------

    \27\ This proposed amendment is intended to restate, clarify, 
and expand upon an existing statement in the AC Charter regarding 
the AC's review of annual audited financial statements, which OCC is 
proposing to delete.
---------------------------------------------------------------------------

    Additionally, to improve the AC's oversight and evaluation of 
external auditors, OCC proposes amendments to the AC Charter to state 
that the AC is required to: (i) Discuss with management the timing and 
process for implementing a rotation of the engagement partner of the 
external auditor and any other active audit engagement team partner; 
(ii) monitor and evaluate the qualifications of both the external 
auditor and engagement partner; (iii) consider whether there should be 
a regular rotation of the audit firm itself; and (iv) pre-approve all 
services provided by the external auditor (as opposed to only non-audit 
services).
Oversight of Internal Audit, Compliance and Compliance-Related Matters
    OCC is proposing to amend Section IV of the AC Charter in order to 
more clearly articulate the AC's responsibility for the oversight of 
Internal Audit. Specifically, OCC proposes amendments to state that the 
AC's responsibilities include reviewing and approving the Internal 
Audit Policy on an annual basis and monitoring ongoing internal audit 
activities. OCC also proposes amendments to state that the AC is 
responsible for approving OCC's annual internal audit plan and 
approving any CAE recommendations for removing or deferring any audits 
from a previously approved internal audit plan to explicitly codify 
these existing AC practices in the AC Charter. OCC believes that the 
AC, which serves as an independent and objective party tasked with the 
oversight of OCC's system of internal control, auditing, accounting, 
and compliance processes, is the appropriate body to approve OCC's 
internal audit plan and any CAE recommendations for removing or 
deferring any audits from a previously approved internal audit plan. 
The proposed amendments would provide more clarity and transparency 
regarding OCC's governance arrangements by codifying these 
responsibilities in the AC Charter.
    OCC also proposes amendments to Section IV of the Charter to more 
clearly articulate the AC's responsibility for oversight of compliance 
and compliance-related matters, including: (i) Annually reviewing and 
approving OCC's Compliance Policy and employee Code of Conduct; (ii) 
reviewing and approving the Compliance Department's process for 
establishing the risk-based annual Compliance Testing Plan, monitoring 
progress against the annual Compliance Testing Plan, and approving 
changes to the Compliance Testing Plan recommend by the CCO; and (iii) 
monitoring ongoing compliance activities by reviewing reports and other 
communications prepared by the Compliance Department, including updates 
from the CCO, and inquiring of management regarding steps taken to 
address items raised.
    In addition, OCC proposes amendments to clarify the AC's 
responsibilities with respect to: (i) Reviewing on a regular basis the 
significant deficiencies and material weaknesses in the design or 
operation of OCC's internal controls (as such issues are identified by 
or presented to the AC); (ii) reviewing fraud involving OCC's 
management or other employees; and (iii) reviewing and approving (as 
opposed to just establishing) OCC's ``whistleblower'' procedures that 
govern reporting of illegal or unethical conduct, accounting 
irregularities and similar matters and discussing any substantive 
issues identified through such procedures with relevant parties.
Oversight of OCC's Chief Audit Executive and Chief Compliance Officer
    OCC proposes amendments to Section IV of the AC Charter to provide 
that the CAE and CCO would each report functionally to the AC and 
administratively to the Executive Chairman.\28\ The proposed amendments 
would make more explicit the reporting lines for these functions and 
underscore the independence of the CAE and CCO. In addition OCC 
proposes to eliminate provisions of the AC Charter that relate to the 
AC's assessment of the performance of the CAE and Internal Audit 
Department, the AC's approval of the compensation of the CAE, and the 
AC's assessment of the Compliance function and replace them with 
provisions that take into account the involvement of the Executive 
Chairman in those functions. Specifically, as amended, the AC Charter 
would state that the AC, in consultation with the Executive Chairman, 
would review the performance of the Internal Audit function and the 
CAE, the Compliance function and the CCO, and determine whether to 
accept or modify the Executive Chairman's recommendations with respect 
to the performance assessment and annual compensation for each. The 
proposed changes related to the performance and compensation setting 
regime for the CAE and CCO are intended to reflect the fact that the 
CAE and CCO report administratively to the Executive Chairman while 
reporting functionally to the AC.
---------------------------------------------------------------------------

    \28\ This change would explicitly note existing reporting lines 
in the AC Charter, but would not revise those reporting lines. These 
provisions mirror a comparable provision in the RC Charter with 
respect to the Chief Risk Officer.
---------------------------------------------------------------------------

Amendments to the Compensation and Performance Committee Charter
    OCC is proposing changes to its CPC Charter to explicitly describe 
the Committee's functions and responsibilities with respect to OCC's 
human resources, compensation and employee benefit programs, and

[[Page 51228]]

insurance programs. The proposed amendments would also provide for CPC 
oversight of OCC's Capital Plan in recognition of the importance of 
providing for Board-level oversight to ensure OCC's capital and Capital 
Plan meet or exceed minimum regulatory standards. The proposed changes 
are described in more detail below.
Purpose, Membership, and Authority
    OCC is proposing to rename the Performance Committee to the CPC in 
order to more accurately reflect its role. OCC is also proposing to 
amend Section I of the CPC Charter to more clearly articulate that the 
CPC is tasked with assisting the Board in the oversight of OCC's 
overall performance in promptly and accurately delivering clearance, 
settlement and other designated industry services and in the 
accomplishment of other periodically-established corporate goals and 
objectives in light of OCC's systemically important status. The CPC 
Charter would further delineate that the CPC is also tasked with (i) 
recommending the compensation of OCC's Executive Chairman and President 
and approving the compensation of certain other officers, as 
appropriate; (ii) overseeing OCC's Capital Plan and financial 
performance; (iii) overseeing OCC's Human Resources program; (iv) 
overseeing the structure and design of the employee compensation, 
incentive and benefit programs; and (v) assisting the Board in 
reviewing OCC's leadership development and succession planning.
    Additionally, OCC proposes amendments to Section II of the CPC 
Charter related to the membership and organization of the CPC. 
Specifically, OCC proposes amendments to conform the CPC Charter to 
proposed Article III, Section 4(b) of OCC's By-Laws to state that the 
Chair of the CPC shall be a Public Director. In addition, OCC proposes 
changes to Section II of the CPC Charter to elaborate on the CPC's 
responsibility to discuss and review the performance and compensation 
levels (including benefits and perquisites such as sign-on bonuses, 
retention arrangements, relocation arrangements and other financial 
commitments of OCC) of members of the Management Committee and certain 
other key officers, as appropriate.
    OCC also proposes administrative amendments to Section II to 
clarify that the CPC would meet at least four times per year, which 
reflects the minimum number of regular meetings in a year in a manner 
consistent with the charters of other Board Committees, and to delete a 
provision of the CPC Charter that requires the CPC Chair to meet in 
private session with the GNC Chair to discuss performance of key 
officers as well as a provision stating that the Chairs of the AC and 
RC would be invited to attend the annual meeting to discuss 
compensation of key officers, including the Chief Risk Officer 
(``CRO'') and CAE.\29\ The CPC Charter would also be amended to require 
that minutes of Committee meetings be circulated to the Board in 
conformance with general requirements applicable to all Board 
Committees.\30\
---------------------------------------------------------------------------

    \29\ These changes are being made to reflect a consultative 
process as between the Executive Chairman and, as applicable, the RC 
and Board to discuss the performance of key officers including the 
CRO and CAE.
    \30\ This requirement is already included in the AC, GNC, RC, 
and TC Charters.
---------------------------------------------------------------------------

    OCC also proposes an amendment to the CPC Charter under which 
attendance at a CPC meeting by telephone is discouraged. Attendance by 
telephone would be generally discouraged because OCC believes the 
Committee may be less likely to have the kind of interaction that leads 
to fully informed discussions and decisions than if Committee members 
were to meet in person. In addition, other clarifying and textual 
changes would be made including, for the reasons stated above, removal 
of references to the Management Vice Chairman.
    Additionally, OCC proposes non-substantive organizational changes 
in Section III regarding the delegation of authority to the 
Administrative Committee that do not change the meaning of the rule 
text.
Functions and Responsibilities
    OCC is proposing amendments to Section IV of the CPC Charter to 
provide explicit descriptions of the Committee's responsibilities with 
respect to OCC's capital structure, financial planning and corporate 
goals and objectives; human resources and compensation programs; and 
employee benefits programs in order to provide a more robust framework 
for the CPC's oversight functions. The proposed changes are described 
in more detail below.
    Additionally, OCC proposes to remove explicit requirements in 
Section IV that the CPC review the Corporate Plan and Budget and OCC's 
performance under the Corporate Plan at each regularly scheduled 
meeting in favor of more general descriptions regarding the CPC's 
responsibilities for the oversight of the corporate financial planning 
process, including the corporate budget, and corporate goals and 
objectives. The proposed amendments are intended to accommodate CPC 
review of annual Corporate Plans and Budgets and performance thereunder 
(as currently contemplated by the CPC Charter) as well as consideration 
of longer-term horizons and implications in the strategic planning 
process.
Oversight of OCC's Capital Plan
    OCC proposes amendments to Section IV of the CPC Charter to 
explicitly provide for the CPC's responsibilities in connection with 
overseeing OCC's capital structure, financial planning, and corporate 
goals and objectives. Specifically, the proposed amendments would state 
that the CPC's responsibilities include oversight of management's 
processes for determining, monitoring and evaluating OCC's Capital 
Plan,\31\ including maintenance of required regulatory capital, and 
recommending approval of such plan to the Board. These amendments would 
also specify that the CPC is responsible for the annual review of OCC's 
Fee, Refund and Dividend Policies and making recommendations to the 
Board for changes to such policies and payments, if any, under the 
Refund and Dividend Policies. In addition, OCC proposes amendments to 
provide that the CPC's responsibilities include the review and approval 
of fee changes pursuant to the Capital Plan, review and recommendation 
to the Board of changes to OCC's fee structure, and oversight of OCC's 
corporate financial planning process (including reviewing the corporate 
budget). Moreover, the proposed amendments provide for the CPC's 
responsibility to review OCC's annual corporate goals and objectives 
and recommend approval thereof to the Board and routinely receive 
reports regarding progress in achieving such goals and objectives. The 
amendments also provide that the CPC is responsible for the periodic 
review of OCC's insurance program.
---------------------------------------------------------------------------

    \31\ See Securities Exchange Act Release No. 74387 (February 26, 
2015), 80 FR 12232 [sic] (March 6, 2015) (SR-OCC-2014-813). See also 
Securities Exchange Act Release No. 74452 (March 6, 2015), 80 FR 
13058 (March 12, 2015) (SR-OCC-2015-02).
---------------------------------------------------------------------------

Oversight of Human Resources and Compensation Programs
    OCC proposes amendments to Section IV of the CPC Charter to 
explicitly state that the CPC's responsibilities include review of 
OCC's Human Resources programs and policies, including OCC's talent 
acquisition, performance management, training, benefits and succession 
planning processes and review and approval of the structure, design, 
and funding as applicable, of employee compensation, incentive and

[[Page 51229]]

benefit programs. This proposed amendment ensures Board Committee 
oversight for management's processes for hiring, retaining and 
developing qualified staff and is consistent with the CPC's oversight 
of overall succession planning processes. Additionally, OCC is 
proposing to amend the CPC Charter to clarify that the CPC annually 
reviews and approves the goals and objectives of the Executive Chairman 
and President.
    Further, OCC is proposing amendments to the CPC Charter that would 
require the CPC to periodically (not less than annually) review and 
approve the general strategy, policies and programs with respect to 
salary compensation (including management compensation) and incentive 
compensation and seek to ensure compensation policies meet evolving 
compensation practices so that such policies remain effective to 
attract, motivate and retain executive officers and other key 
personnel. The proposed amendments would also require the CPC to review 
and approve the performance and compensation of key employees, such as 
members of OCC's Management Committee, at the end of each year and to 
make recommendations to the Board regarding the compensation of the 
Executive Chairman and the President. Additionally the proposed 
amendments would require the CPC to review proposed material changes to 
executive management benefits and to periodically review the 
compensation of Public Directors and make recommendations to the Board 
with respect thereto.
    OCC proposes to remove from the CPC Charter certain statements 
regarding the review of OCC's performance under the Corporate Plan and 
the oversight of the administration of OCC's compensation plans as 
these responsibilities would be covered under the newly proposed 
descriptions contained therein. OCC believes that it is prudent and 
appropriate to provide for CPC oversight in the areas of human 
resources, performance, and compensation and that the proposed 
amendments will enhance OCC's overall governance arrangements with 
respect to the oversight and review of performance and compensation at 
OCC.
Oversight of Employee Benefit Programs and Other Responsibilities
    OCC also proposes amendments to Section IV of the CPC Charter 
related to the CPC's oversight responsibilities for employee benefit 
programs. Specifically, OCC would make amendments to the CPC Charter to 
specify the CPC's responsibilities for oversight, administration, and 
operation of employee benefit, retiree and welfare benefit plans, 
including the review of funding plan obligations. The proposed 
amendments also specify the scope of employee welfare plans that the 
CPC reviews and the CPC's right to adopt new compensation, retirement 
and welfare benefit plans or to terminate existing plans other than 
such plans that require Board action to amend or terminate. In 
addition, the proposed amendments would provide more clarity regarding 
the CPC's responsibilities for monitoring the Administrative 
Committee's duties in connection with retirement and retirement savings 
plans, investment strategy and performance, plan design and compliance, 
prudent selection of investment managers and compensation and benefits 
consultants, and performing such other oversight duties as called for 
in retirement, retirement and savings, and welfare plan documents.
    OCC further proposes amendments that state that the CPC is 
responsible for providing updates to the Board periodically regarding: 
(i) Actions taken by the CPC with respect to its review of OCC's 
compensation, retirement and employee welfare plans; (ii) the financial 
position and performance of these plans; and (iii) adherence to 
investment guidelines, in each case, where applicable.
Amendments to the Risk Committee Charter
    OCC is proposing amendments to its RC Charter which are primarily 
intended to enhance OCC's governance arrangements with respect to the 
RC's oversight functions and responsibilities. OCC also proposes 
amendments to better align the RC Charter with the OCC By-Laws, 
including changes in the composition requirements of the RC (as 
described above) and to reflect the adoption of the TC. The proposed 
changes are described as follows.
Purpose, Membership and Authority
    OCC proposes amendments to Section I of the RC Charter to provide 
that the RC would be responsible for coordinating risk oversight with 
other Board Committees tasked with overseeing certain risks (e.g., the 
TC, which assists the Board in overseeing OCC's information technology 
risks) in order to achieve comprehensive and holistic oversight of 
OCC's risk-related matters. The proposed amendments would also provide 
that the RC is responsible for the review of material policies and 
processes associated with risks related to new initiatives.
    In Section II of the RC Charter, OCC proposes amendments to provide 
that attendance at a RC meeting by telephone is discouraged. Attendance 
by telephone would be generally discouraged because OCC believes the 
Committee may be less likely to have the kind of interaction that leads 
to fully informed discussions and decisions than if Committee members 
were to meet in person. OCC also proposes to remove from the RC 
Charter, and by extension its rules, a requirement that a RC member 
shall recuse himself from any matter in which his firm has an interest, 
other than a common interest shared with Clearing Members generally or 
a particular class of Clearing Members. OCC believes that the 
identification and handling of conflicts of interest are already 
appropriately addressed in its Code of Conduct for OCC Directors,\32\ 
which governs the conduct of all directors equally regardless of 
category or committee assignment. Furthermore, OCC notes that, as a 
corporation incorporated in the state of Delaware, OCC's Directors have 
a fiduciary duty to protect the interests of the corporation and to act 
in the best interests of its shareholders \33\ and are bound by a duty 
of loyalty to OCC, which demands that there be no conflict between duty 
and self-interest and that the best interest of the corporation and its 
shareholders takes precedence over any interest possessed by a 
director.\34\
---------------------------------------------------------------------------

    \32\ See Code of Conduct for OCC Directors available at http://www.optionsclearing.com/components/docs/about/corporate-information/occ-code-of-conduct.pdf.
    \33\ See Cede & Co. v. Technicolor, 634 A.2d 345, 360-361 (Del. 
1993).
    \34\ See Guth v. Loft, Inc., 5 A.2d 503, 510 (Del. 1939).
---------------------------------------------------------------------------

    With respect to RC meetings, OCC proposes amendments to state that 
the RC shall meet regularly, and no less than once annually, (rather 
than ``at least annually'') with the CRO and members of management (as 
opposed to other appropriate corporate officers) in separate executive 
sessions to discuss certain private matters. The purpose of the 
proposed change is to signify that these meetings occur more frequently 
than once per year. The proposed changes would also more specifically 
require that the RC meet in executive session regularly with members of 
management. The RC would continue to have the discretion to invite any 
other officers it deems appropriate to meetings in executive session 
pursuant to the proposed common charter amendments described above. 
Moreover, and in order to enhance the independence and functional 
reporting relationship of the CRO to the RC, OCC

[[Page 51230]]

proposes revisions to explicitly state that the CRO is authorized to 
communicate with the RC Chair outside of regular meetings. OCC also 
proposes to amend the RC composition requirements in Section II in 
order to conform to the proposed By-Law changes discussed above. 
Specifically, the RC Charter would be revised to state that the RC 
shall consist of the Executive Chairman, at least one Exchange 
Director, at least one Member Director, and at least one Public 
Director. OCC is also proposing an amendment to Section II to require 
that the RC meet at least six times a year (as opposed to seven) in 
recognition of the fact that the time allotted for each individual RC 
meeting has been expanded. Furthermore, OCC proposes to amend Section 
II of the RC Charter to state that, unless a Chair is elected by the 
full Board, the members of the RC shall designate a Chair by majority 
vote. This proposed amendment is in conformance with OCC's current 
practices for electing Committee Chairs and as described in other 
Committee Charters.
    OCC also proposes to amend Section III of the RC Charter to provide 
that, in addition to RC subcommittees, the RC may also delegate 
authority to OCC's Management Committee or Enterprise Risk Management 
Committee. As described herein, the RC is responsible for assisting the 
Board in overseeing OCC's policies and processes for identifying and 
addressing strategic, operational, and financial risks and for 
overseeing the overall enterprise risk management framework implemented 
by management. The proposed amendment would allow the RC to delegate 
authority to the Management Committee and Enterprise Risk Management 
Committee to carry out certain tasks and responsibilities in the day-
to-day risk management of OCC and to implement proposals that have been 
approved in concept by the RC where the RC deems such delegation of 
authority to be appropriate.
Risk Committee Functions and Responsibilities
    OCC proposes amendments to Section IV of the RC Charter to enhance 
its governance arrangements in connection with the oversight of 
membership requirements, margin requirements, the Enterprise Risk 
Management Program, and a number of other responsibilities.
Oversight of Membership and Margin Requirements
    OCC proposes amendments to the RC Charter to provide a broader 
description of the RC's oversight of the adequacy and effectiveness of 
OCC's framework for clearing membership. In general, these changes are 
not intended to substantively change or eliminate any of the RC's 
existing responsibilities with respect to its oversight of OCC's 
clearing membership framework and would continue to encompass the 
responsibilities currently enumerated in the charter.\35\ Specifically, 
the RC Charter provisions related to the RC's oversight role with 
respect to clearing membership issues would be replaced with a more 
general statement that the RC is responsible for the oversight of OCC's 
framework for clearing membership, including: (i) Periodically 
reviewing and revising, as appropriate, OCC's initial and ongoing 
requirements for clearing membership; \36\ (ii) overseeing the 
processes established for reviewing and monitoring clearing membership 
(including in respect of the continuance of potentially problematic 
members); \37\ and (iii) making recommendations to the Board, as 
applicable, for final determination in respect the foregoing.
---------------------------------------------------------------------------

    \35\ For example, individual provisions related to specific 
types of membership categories and requirements would be replaced by 
a broader restatement of the RC's responsibilities, which is 
intended to capture all of the responsibilities enumerated in the 
deleted provisions.
    \36\ This proposed provision is a restatement of an existing RC 
responsibility for periodically reviewing and recommending changes 
to the initial and ongoing requirements for membership and would 
also replace and encompass the responsibilities in an existing 
provision of the RC Charter stating that the RC is responsible for 
recommending to the Board membership requirements for non-broker-
dealers.
    \37\ This proposed provision would replace and encompass the 
RC's responsibilities contained in existing RC Charter provisions 
related to the conducting of hearings for applicants proposed to be 
disapproved by the RC, the review and approval/disapproval of 
requests to participate in the Stock Loan Programs, and the 
approval/disapproval of the continued membership of managed Clearing 
Members.
---------------------------------------------------------------------------

    In addition, OCC proposes to modify certain provisions related to 
the surveillance of Clearing Members and contingency planning for 
Clearing Member failures. Specifically, OCC proposes to consolidate 
these provisions to restate that the RC is responsible for the 
oversight of the adequacy and effectiveness of OCC's contingency plan 
for Clearing Member failures, including: (i) Reviewing Clearing Member 
surveillance criteria; (ii) overseeing the management processes for 
managing Clearing Members that are subject to closer than normal 
surveillance or are otherwise in or approaching financial or 
operational difficulty; (iii) imposing and modifying restrictions and 
requirements already imposed on Clearing Members in a manner consistent 
with the By-Laws and Rules; \38\ and (iv) making recommendations to the 
Board in respect of the foregoing.
---------------------------------------------------------------------------

    \38\ This proposed provision would replace and encompass the 
responsibilities in an existing RC Charter provision related to the 
RC's responsibility for reviewing and modifying or reversing 
restrictions or additional requirements imposed on Clearing Members 
pursuant to Rule 305.
---------------------------------------------------------------------------

    OCC proposes similar amendments to the RC Charter to restate the 
RC's responsibilities in connection with its oversight of margin and 
clearing fund requirements. OCC proposes to remove certain existing 
provisions related to the oversight of margin and clearing fund 
requirements and replace them with a more high level description that 
would provide that the RC oversees OCC's processes for establishing, 
monitoring and adjusting margin consistent with the protection of OCC, 
Clearing Members, or the general public, including: (i) Reviewing and 
modifying OCC's margin formula, the methodologies used for determining 
margin and clearing fund requirements, and making recommendations to 
the Board, as applicable, in respect thereof; \39\ (ii) evaluating 
(including increasing) the amount of margin required in respect of any 
contract or position; (iii) establishing and reviewing guidelines for 
requiring the deposit of additional margin; and (iv) reviewing and 
approving determinations about assets eligible for deposit as margin or 
clearing fund as provided in the By-Laws and Rules.\40\ In general, the 
proposed amendments are not intended to substantively change the RC's 
responsibilities in the deleted provisions but would instead replace 
them with a broader description intended to encompass those 
responsibilities. OCC is proposing, however, to delete an existing RC 
Charter provision specifically requiring the RC to periodically review 
the inputs to OCC's margin formula and modify them to the extent it 
deems such action to be consistent with the protection of OCC, Clearing 
Members, or the general public. While this specific requirement is 
being removed from the Charter, OCC believes that the Charter continues 
to provide an adequate and appropriate oversight framework for the 
monitoring

[[Page 51231]]

and development of OCC's margin formula and would provide the RC with 
continued authority to modify margin formula inputs if it deems such 
modification to be appropriate.\41\
---------------------------------------------------------------------------

    \39\ This proposed provision would include language from an 
existing Charter provision stating that the RC will review 
methodologies used for calculating margin and clearing fund 
requirements.
    \40\ This proposed provision would replace and encompass the 
RC's responsibilities contained in existing Charter provisions 
related to the oversight of acceptable margin and clearing fund 
assets, including the approval of classes of GSE securities for 
deposit as margin, prescribing intervals for revaluing debt 
securities deposited as margin of clearing fund, and specifying 
haircuts for securities provided as margin.
    \41\ As noted above, the proposed amendments to the RC Charter 
provide that the RC is responsible for overseeing the processes 
established for establishing, monitoring and adjusting margin 
consistent with the protection of OCC, Clearing Members, or the 
general public, including reviewing and modifying OCC's margin 
formula.
---------------------------------------------------------------------------

    OCC also proposes to delete a provision stating that the RC is 
responsible for making determinations regarding approval of non-U.S. 
institutions to issue letters of credit as a form of margin asset 
because this provision does not accurately reflect the RC's 
responsibilities. While the RC is responsible for overseeing standards 
used to admit non-U.S. institutions, OCC's President and Executive 
Chairman have general responsibility for approving financial 
institutions seeking to become non-U.S. letter of credit banks and that 
meet the requirements of OCC Rule 604, Interpretation and Policy .01 
(with the exception of certain ``equivalent country'' and ``equivalent 
institution'' determinations that are required to be made by the RC 
pursuant to OCC Rule 604, Interpretations and Policies .01(b)(3) and 
.01(b)(4)(b)).
Oversight of OCC's Enterprise Risk Management Program and Risk 
Tolerances
    OCC proposes amendments to restate and expand upon the RC's 
responsibility for overseeing OCC's Enterprise Risk Management program. 
Currently, the RC is responsible for overseeing the structure, staffing 
and resources of the Enterprise Risk Management program, reviewing 
periodic reports regarding the Enterprise Risk Management program, and 
annually reviewing and assessing the overall program. OCC proposes 
amendments to the RC Charter that would restate these existing 
responsibilities and add new responsibilities designed to enhance the 
risk oversight framework for the Enterprise Risk Management program. 
Specifically, the proposed amendments would state that the RC is 
responsible for overseeing OCC's Enterprise Risk Management program, 
including (in addition to the existing responsibilities noted above), 
reviewing the systems and procedures that management has developed to 
manage the risks to OCC's business operations and regularly discussing 
these systems and procedures with management, reviewing with management 
the interrelated nature of OCC's risks, and annually approving the 
Enterprise Risk Management program's goals and objectives. OCC believes 
that explicitly incorporating these responsibilities into the RC 
Charter will provide for a more comprehensive oversight framework for 
the Enterprise Risk Management program.
    OCC also proposes amendments to restate and expand upon the RC's 
responsibility for the oversight of OCC's risk appetite and risk 
tolerances. Currently, the RC Charter provides that the RC is 
responsible for reviewing and recommending for Board approval the OCC 
Risk Appetite Statement and reviewing and monitoring OCC's risk profile 
for consistency with OCC's Risk Appetite Statement. The proposed 
amendments to the RC Charter would state that, in addition to these 
responsibilities, the RC would be responsible for reviewing and 
monitoring determinations regarding appropriate risk tolerances, 
including reviewing with management on a regular basis management's 
view of appropriate risk tolerances and assessing whether this view is 
appropriate, and recommending risk tolerance parameters to the Board. 
OCC believes that explicitly incorporating these responsibilities into 
the RC Charter will provide for a more comprehensive oversight 
framework for OCC's risk appetite and risk tolerances.
Other Oversight Responsibilities
    Section I of the RC Charter currently provides that the RC is 
responsible for the oversight and review of material policies and 
processes relating to member and other counterparty risk exposure 
assessments. OCC proposes amendments to Section IV that would further 
specify that the RC oversees the adequacy and effectiveness of OCC's 
processes for setting, monitoring and acting on risk exposures to OCC 
presented by banks, depositories, financial market utilities and trade 
sources. OCC believes that the oversight of such risk exposures is 
critical to ensuring the safety and soundness of OCC and that 
specifically including this responsibility in the RC Charter will 
provide for greater clarity and transparency regarding the RC's role in 
overseeing these risks. Section I of the RC Charter also currently 
provides that the RC is responsible for the oversight and review of 
material policies and processes (i) for identifying liquidity risks and 
(ii) relating to liquidity requirements and the maintenance of 
financial resources. The proposed amendments to Section IV would 
further specify that the RC oversees the processes established by OCC 
for setting, monitoring and managing liquidity needs necessary for OCC 
to perform its obligations as a systemically important financial market 
utility. OCC believes that comprehensive oversight of liquidity risks 
and liquidity risk management is critical to ensuring the safety, 
soundness, and resilience of OCC and that providing more specificity 
regarding the RC's responsibilities with respect to liquidity risk will 
provide for greater clarity and transparency regarding the RC's role in 
such oversight. In addition, the RC Charter would be amended to provide 
that the RC and management would discuss on a regular basis the impact 
on systemic stability that may arise as a result of OCC's actions in 
responding to an extraordinary market event, including the impending or 
actual failure of a Clearing Member, and the development of strategies 
to mitigate these effects. OCC believes it is prudent for management 
and the RC to engage in regular discussions concerning OCC's actions in 
extreme market events and the potential impacts on systemic stability 
given OCC's role as a systemically important financial market utility.
    OCC also proposes to elaborate on the statement that the RC would 
perform the responsibilities delegated to it by the Board under OCC's 
By-Laws and Rules by specifying that this would include the 
authorization of the filing of regulatory submissions pursuant to such 
delegation. Additionally, OCC proposes amendments to state that the RC 
would oversee management's responsibility for handling financial (i.e., 
credit, market, liquidity and systemic) risks, including the structure, 
staffing and resources of OCC's Financial Risk Management department. 
In addition, OCC proposes amendments to state that the RC's oversight 
responsibilities include: (i) Identifying issues relating to strategic, 
credit, market, operational, liquidity and systemic risks that should 
be escalated to the Board for final action and (ii) reviewing, 
approving and reassessing reporting metrics reflecting the risks for 
which the RC has oversight.
    Further, the proposed amendments would specify that the RC oversees 
OCC's model risk management process, policies and controls, including: 
(i) Overseeing model risk governance; (ii) reviewing the findings of 
any third party engaged by management to evaluate OCC's risk models; 
and (iii) annually reviewing and approving the Model Validation Plan 
and receiving periodic reports thereunder. Moreover, the amendments 
would provide that the RC is responsible for reviewing the results

[[Page 51232]]

of any audits (internal and external), regulatory examinations and 
supervisory examination reports as to significant risk items or any 
other matter relating to the areas that the RC oversees, as well as 
management's responses pertaining to matters that are subject to the 
oversight of the RC.
Conforming, Administrative and Non-Substantive Changes
    In order to conform the RC Charter to the GNC Charter and AC 
Charter, OCC proposes amendments to the RC Charter that would eliminate 
provisions under which the RC Chair attends the year-end CPC meeting to 
discuss the performance and compensation levels of the CRO. Rather, 
under the proposed amended RC Charter, the RC, in consultation with the 
Executive Chairman, would review the performance of the Enterprise Risk 
Management and Model Validation programs as well as the CRO and 
determine whether to accept or modify the Executive Chairman's 
recommendations with respect to the performance assessment and annual 
compensation for the CRO.\42\ This change reflects the reporting of the 
CRO to the Executive Chairman for administrative purposes, while 
preserving functional reporting to the Committee.
---------------------------------------------------------------------------

    \42\ This change is consistent with comparable changes to the AC 
Charter with respect to the annual compensation of the CAE and CCO, 
respectively.
---------------------------------------------------------------------------

    Further, the proposed amendments confirm that the RC has the 
responsibility for ratifying, modifying, or reversing action taken by 
OCC officers that have been delegated authority to consider requests by 
Clearing Members to expand clearing activities to include additional 
account types and/or products. Moreover, OCC proposes amendments to the 
RC Charter to clarify that the RC has the authority to authorize the 
filing of a regulatory submission pursuant to authority delegated to it 
by the Board.
Amendments to the Governance and Nominating Committee Charter
    OCC proposes amendments to the GNC Charter to reflect the 
elimination of term limits for Public Directors as discussed above and 
to state that attendance of GNC meetings by telephone is discouraged. 
Attendance by telephone would be generally discouraged because OCC 
believes the Committee may be less likely to have the kind of 
interaction that leads to fully informed discussions and decisions than 
if Committee members were to meet in person. OCC also proposes to 
delete a provision stating that a designated officer of management 
shall serve to assist the Committee and act as a liaison between staff 
and the Committee because OCC believes that experience has shown that 
designating a formal role for a liaison was unnecessary. Deleting this 
requirement would also maintain uniformity across all Committee 
Charters, as no other Committee has a formally designated liaison.
    OCC also proposes amendments to the GNC Charter to specify that the 
Chair (or the Chair's designee) shall consult with the Corporate 
Secretary, in addition to management, to prepare an agenda in advance 
of each GNC meeting as the Corporate Secretary is responsible for 
coordinating the preparation and distribution of Board and Board 
Committee meeting agendas. In addition, OCC is proposing non-
substantive drafting changes regarding: (i) The numbering of certain 
provisions in Section I of the GNC Charter and (ii) the requirements 
for GNC Committee reports to the Board in Section II of the Charter.
Amendments to the Technology Committee Charter
    OCC is proposing amendments to its TC Charter to require that the 
Committee meet regularly, and no less than once annually, with OCC's 
Chief Security Officer (``CSO'') and to provide that the CSO is 
authorized to communicate with directly with [sic] the Chair of the TC 
in between meetings of the Committee in order to strengthen the 
autonomy and independence of the CSO role at OCC. OCC also proposes to 
amend the TC Charter to provide that the TC shall make such reports to 
the Board as deemed necessary or advisable. This proposed change would 
promote effective communication between the TC and the Board is in line 
with requirements in other Committee Charters. OCC also proposes non-
substantive amendments to Section III of the TC Charter to eliminate a 
provision that referenced approval of non-audit services which appeared 
to be an inadvertent carry-over from the Audit Committee Charter and to 
Section IV of the Charter to change the term ``the Company'' to ``OCC'' 
and ``Board of Directors'' to ``Board.''
2. Statutory Basis
    OCC believes that the proposed rule change is consistent with 
Section 17A of the Act \43\ and the rules thereunder applicable to OCC. 
OCC's governance arrangements, which include, but are not limited to, 
OCC's Certificate of Incorporation, By-Laws, the Board Charter, and the 
Committee Charters promote the effectiveness of OCC's Board and Board 
Committees' oversight on OCC's business, risk management, and 
operational processes. OCC believes that the proposed changes to its 
governance arrangements would enhance the effectiveness of the Board 
and Board Committees' oversight on such matters and are designed to 
provide more clarity and transparency with respect to OCC's governance 
arrangements, thereby promoting the prompt and accurate clearance and 
settlement of securities transactions, and in general, protecting 
investors and the public interest in accordance with Section 
17A(b)(3)(F) of the Act \44\ and ensuring that OCC has clear and 
transparent governance arrangements consistent with Rule 17Ad-22(d)(8) 
\45\ thereunder. The proposed rule change is not inconsistent with the 
existing rules of OCC, including any other rules proposed to be 
amended. The statutory basis for the proposed amendments is discussed 
in more detail below.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78q-1.
    \44\ 15 U.S.C. 78q-1(b)(3)(F).
    \45\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

Amendments to OCC's Certificate of Incorporation, By-Laws, and Rules
    OCC is proposing to amend its Certificate of Incorporation and By-
Laws to modify the composition requirements for OCC's Board to require 
that only one Management Director shall serve on OCC's board. 
Currently, there is a vacancy for one Management Director position on 
the Board (OCC also notes that, prior to the addition of a second 
Management Director seat in 2013, OCC has historically had only one 
Management Director serving on its Board). OCC's Board continually 
evaluates the leadership structure at OCC, including the appropriate 
number of Management Directors for OCC's Board, and in light of recent 
experience with the current Management Director vacancy, the Board 
believes that amending the Board composition to require one Management 
Director would continue to provide an appropriate level of management 
representation in the Board-level oversight of OCC. The Executive 
Chairman, as Management Director, would continue to represent 
management's viewpoint on OCC's Board. Moreover, the Board has access 
to OCC's management team, which ensures that the Board has continued 
access to management's perspectives on the business and affairs of OCC. 
Accordingly, OCC believes that the proposed amendments to OCC's 
governance arrangements are designed,

[[Page 51233]]

in general, to protect investors and the public interest in accordance 
with Section 17A(b)(3)(F) of the Act \46\ and are reasonably designed 
to be clear and transparent to fulfill the public interest requirements 
in Section 17A of the Act \47\ applicable to clearing agencies in 
accordance with Rule 17Ad-22(d)(8) \48\ thereunder.
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78q-1(b)(3)(F).
    \47\ 15 U.S.C. 78q-1.
    \48\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

    OCC is also proposing to amend its By-Laws and Rules to eliminate 
the role of Management Vice Chairman. The office of Management Vice 
Chairman has been vacant for a number of years and has not been 
included in the Board's current discussions regarding management 
succession planning. OCC believes that the responsibilities of the 
Management Vice Chairman are appropriately handled by other officers of 
OCC (and are currently handled by such officers), primarily the 
Executive Chairman and President, or where applicable, other officers 
such as the Secretary or directors such as the Member Vice Chairman, 
and as a result, the title is being eliminated from OCC's By-Laws and 
Rules. OCC believes the proposed amendments would more accurately 
reflect the current state of affairs regarding the office of Member 
Vice Chairman, ensure consistency across all of OCC's governing 
documents, provide more clarity and transparency regarding OCC's 
intended governance arrangements, and continue to provide for 
appropriate and prudent governance arrangements at OCC. Accordingly, 
OCC believes the proposed amendments are designed in general, to 
protect investors and the public interest in accordance with Section 
17A(b)(3)(F) of the Act \49\ and are reasonably designed to be clear 
and transparent to fulfill the public interest requirements in Section 
17A of the Act \50\ applicable to clearing agencies in accordance with 
Rule 17Ad-22(d)(8) \51\ thereunder.
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78q-1(b)(3)(F).
    \50\ 15 U.S.C. 78q-1.
    \51\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

    The proposed amendments to OCC's By-Laws also would require that 
the CPC and AC each be chaired by a Public Director, which will help to 
ensure the objectiveness and independence of those committees. It would 
also eliminate term limits for Public Directors, allowing OCC's Public 
Directors the time necessary to develop the particularized degree of 
knowledge and understanding of OCC's business to ensure that they are 
able to provide significant value in the governance process. OCC 
therefore believes that the proposed changes are designed, in general, 
to protect investors and the public interest in accordance with Section 
17A(b)(3)(F) of the Act \52\ and are reasonably designed to be clear 
and transparent to fulfill the public interest requirements in Section 
17A of the Act \53\ applicable to clearing agencies in accordance with 
Rule 17Ad-22(d)(8) \54\ thereunder.
---------------------------------------------------------------------------

    \52\ 15 U.S.C. 78q-1(b)(3)(F).
    \53\ 15 U.S.C. 78q-1.
    \54\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

    In addition, the proposed rule change would require that at least 
one Exchange Director be a member of the RC and would reduce the 
minimum composition requirement for Member Directors on the RC to allow 
for greater flexibility in the selection of Directors with the 
requisite skills and expertise to serve on the RC. The addition of an 
Exchange Director to the RC will enhance the RC's oversight 
capabilities by providing additional expertise and unique perspectives 
on matters such as market risk as well as sophistication as to special 
risks arising from trading practices, strategies, and new products. 
Moreover, the reduction in the minimum number of Member Directors 
serving on the RC would provide OCC with greater flexibility to ensure 
that the RC is comprised of those Directors that have the appropriate 
mix of knowledge and expertise necessary to provide for the prudent 
oversight of risk matters at OCC. It would also continue to ensure the 
fair representation of Member Directors on OCC's RC as the minimum 
number Member Directors would be consistent with requirements that the 
Executive Chairman (as the lone Management Director), one Exchange 
Director, and at least one Public Director serve on the RC. OCC 
therefore believes that the proposed amendments are designed, and in 
general, to protect investors and the public interest in accordance 
with Section 17A(b)(3)(F) of the Act,\55\ are reasonably designed to be 
clear and transparent to promote the effectiveness of OCC's risk 
management procedures in accordance with Rule 17Ad-22(d)(8) \56\ 
thereunder, and are designed to ensure a fair representation of OCC's 
members and participants in the administration of its affairs (as they 
pertain to the oversight of risk matters at OCC) in accordance with 
Section 17A(b)(3)(C) of the Act.\57\
---------------------------------------------------------------------------

    \55\ 15 U.S.C. 78q-1(b)(3)(F).
    \56\ 17 CFR 240.17Ad-22(d)(8).
    \57\ 15 U.S.C. 78q-1(b)(3)(C).
---------------------------------------------------------------------------

    OCC is also proposing a number of other amendments to better align 
its By-Laws and Board and Board Committee Charters and to provide more 
clarity and transparency with respect to OCC's governance arrangements. 
In particular, OCC proposes amendments to Article IV, Section 7 to: (i) 
Delete a requirement that the Member Vice Chairman preside at the 
meetings of any committee of the Board charged with reviewing and 
evaluating the performance and compensation of officers as the CPC 
would now be chaired by a Public Director and (ii) clarify that the 
Member Vice Chairman would preside over meetings of the Board and 
stockholders in the absence of the Executive Chairman because the 
President cannot preside over meetings of the Board. OCC believes that 
the proposed changes would provide more clarity, transparency, and 
accuracy regarding its governance arrangements with respect to the 
responsibilities of the Member Vice Chairman and President and are 
therefore designed to ensure that OCC's governance arrangements are 
clear and transparent to fulfill the public interest requirements in 
Section 17A of the Act \58\ in accordance with Rule 17Ad-22(d)(8).\59\
---------------------------------------------------------------------------

    \58\ 15 U.S.C. 78q-1.
    \59\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

Amendments to the Board Charter and the Fitness Standards
    The proposed rule change would amend the Board Charter, as 
described in detail above, to: (i) Harmonize the description of the 
Board's obligations in the Board Charter with the description of the 
Board's obligations in OCC's By-Laws and Rules; (ii) reflect recent 
changes involving Board Committee Charters; (iii) reflect recent 
changes to the Board's composition; and (iv) in general, restate the 
responsibilities of the Board in overseeing the management of the 
affairs of OCC in light of its role as a systemically important 
financial market utility. The proposed amendments would provide more 
clarity around the responsibilities of the Board, specifically with 
respect to its role in: (i) Overseeing management's activities in 
managing, operating and developing OCC, including the selection, 
oversight and replacement of key positions (i.e., Executive Chairman, 
CEO, and the President) as well as evaluating their performance and 
compensation awards; (ii) setting expectations about the tone and 
ethical culture at OCC and its ability to ensure compliance with 
applicable laws and regulations; (iii) reviewing and approving 
financial objectives and strategies, capital plan and capital 
structure, fee structure, capital expenditures and budgets; (iv) the 
oversight of governance processes,

[[Page 51234]]

including performing annual self-evaluations on a group and individual 
level; and (v) the oversight of risk assessment and risk tolerances. 
OCC believes the proposed changes would provide for prudent governance 
arrangements with respect to the Board's oversight role over OCC as a 
systemically important financial market utility and are therefore 
reasonably designed to ensure that OCC has governance arrangements 
that, in general, protect investors and the public interest consistent 
with Section 17A(b)(3)(F) of the Act \60\ and are clear and transparent 
to fulfill the public interest requirements in Section 17A of the Act 
\61\ applicable to clearing agencies and to support the objectives of 
owners and participants in accordance with Rule 17Ad-22(d)(8) 
thereunder.\62\
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    \60\ 15 U.S.C. 78q-1(b)(3)(F).
    \61\ 15 U.S.C. 78q-1.
    \62\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

    In addition, OCC proposes to amend the Board Charter to state that 
the Board is comprised of one Management Director, rather than two 
Management Directors, in conformance with the proposed amendments to 
the Certificate of Incorporation and By-Laws described above. OCC also 
proposes amendments to the Fitness Standards to remove redundant 
descriptions of Board composition and the nomination process and to 
underscore that the Fitness Standards are intended to facilitate the 
performance of OCC's role as a systemically important financial market 
utility. OCC believes that the proposed changes provide additional 
clarity and transparency regarding its governance arrangements and are 
therefore designed to ensure that OCC's governance arrangements are 
clear and transparent to fulfill the public interest requirements in 
Section 17A of the Act \63\ applicable to clearing agencies in 
accordance with Rule 17Ad-22(d)(8).\64\
---------------------------------------------------------------------------

    \63\ 15 U.S.C. 78q-1.
    \64\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

    Additionally, OCC proposes amendments that would allow for 
additional meetings of the Board to be called as the Board deems 
appropriate (such meetings being be called by the Executive Chairman or 
his designee), which will provide the Board with increased flexibility 
in performing its oversight functions. Accordingly, OCC believes the 
proposed amendments to its governance arrangements are designed, in 
general, to protect investors and the public interest in accordance 
with Section 17A(b)(3)(F) of the Act \65\ and are reasonably designed 
to be clear and transparent to fulfill the public interest requirements 
in Section 17A of the Act \66\ applicable to clearing agencies in 
accordance with Rule 17Ad-22(d)(8) \67\ thereunder.
---------------------------------------------------------------------------

    \65\ 15 U.S.C. 78q-1(b)(3)(F).
    \66\ 15 U.S.C. 78q-1.
    \67\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

Common Amendments to the Committee Charters
    OCC is proposing to make a number of common amendments to the 
Committee Charters as a result of the Commission approving certain 
changes to the GNC Charter.\68\ Specifically, OCC proposes to amend 
each Committee Charter to confirm that each Committee has access to all 
books, records, facilities and personnel of OCC in carrying out the 
respective Board Committee's purpose and responsibilities and to delete 
a provision from each Committee Charter which granted the Chair of each 
Board Committee the authority to act on behalf of the respective Board 
Committee in situations in which immediate action was required and 
convening a Board Committee meeting was impractical. The proposed 
amendments would ensure that each Committee has access to all books, 
records, facilities and personnel of OCC in carrying out its respective 
responsibilities and would support deliberation and action by a Board 
Committee as a whole, rather than action by solely its Chair, and as a 
result, would help to ensure that each Committee is able to make fully 
informed, collective decisions regarding the governance of OCC. OCC 
therefore believes the proposed amendments are designed in general, to 
protect investors and the public interest in accordance with Section 
17A(b)(3)(F) of the Act \69\ and are reasonably designed to be clear 
and transparent to fulfill the public interest requirements in Section 
17A of the Act \70\ applicable to clearing agencies in accordance with 
Rule 17Ad-22(d)(8) \71\ thereunder.
---------------------------------------------------------------------------

    \68\ See supra note 16.
    \69\ 15 U.S.C. 78q-1(b)(3)(F).
    \70\ 15 U.S.C. 78q-1.
    \71\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

    In addition, OCC is proposing a number of common changes across its 
Committee Charters to strengthen OCC's Board Committee governance 
framework and practices surrounding meetings in executive sessions by 
providing added structure regarding the convening and attendance of 
executive sessions (and specifically requiring that each Committee meet 
in executive session at each regular meeting of the Committee) and by 
promoting the enhanced recordation of important meeting events and 
discussions by requiring that each Committee's meeting minutes reflect, 
at a minimum, that an executive session was convened and broadly 
describe the topic(s) discussed. OCC believes that meetings in 
executive session are an important tool for Board Committees to discuss 
matters of a sensitive nature or for which certain persons may have 
conflicts of interest; however, OCC also believes that it is important 
that these sessions be documented, at least in summary fashion, in the 
interest of transparency. OCC therefore believes the proposed 
amendments providing for added structure regarding the convening, 
attendance, and recordation of executive sessions are designed, in 
general, to protect investors and the public interest in accordance 
with Section 17A(b)(3)(F) of the Act \72\ and are reasonably designed 
to be clear and transparent to fulfill the public interest requirements 
in Section 17A of the Act \73\ applicable to clearing agencies in 
accordance with Rule 17Ad-22(d)(8) \74\ thereunder.
---------------------------------------------------------------------------

    \72\ 15 U.S.C. 78q-1(b)(3)(F).
    \73\ 15 U.S.C. 78q-1.
    \74\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

    Additionally, the Committee Charters would be amended to permit any 
Board Committee to engage specialists or advisors to assist it in 
carrying out its delegated responsibilities without requiring pre-
approval from the Board. Under the proposed amendments, each 
Committee's engagement of an advisor, including fees and expenses, 
would be referenced in its annual report to the Board. These proposed 
amendments are intended to foster Committee independence as well as 
timely Committee access to expertise relevant to the discharge of its 
delegated responsibilities while preserving Board oversight via the 
application of existing reporting mechanisms. Accordingly, OCC believes 
that the proposed amendments are designed, in general, to protect 
investors and the public interest in accordance with Section 
17A(b)(3)(F) of the Act \75\ and are reasonably designed to be clear 
and transparent to fulfill the public interest requirements in Section 
17A of the Act \76\ applicable to clearing agencies in accordance with 
Rule 17Ad-22(d)(8) \77\ thereunder.
---------------------------------------------------------------------------

    \75\ 15 U.S.C. 78q-1(b)(3)(F).
    \76\ 15 U.S.C. 78q-1.
    \77\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

    OCC is also proposing amendments to its Committee Charters to 
specify that that [sic] each Committee should evaluate its and its 
individual member's performance on an annual basis (as opposed to 
regularly) to provide more clarity and specificity regarding the timing 
of each Committee's self-

[[Page 51235]]

assessment process. OCC believes the proposed amendments are therefore 
reasonably designed to be clear and transparent to fulfill the public 
interest requirements in Section 17A of the Act \78\ applicable to 
clearing agencies in accordance with Rule 17Ad-22(d)(8) \79\ 
thereunder.
---------------------------------------------------------------------------

    \78\ 15 U.S.C. 78q-1.
    \79\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

Amendments to the Audit Committee Charter
    The proposed amendments to the AC Charter are designed to: (i) 
Underscore the independence of the AC; (ii) underscore and expand upon 
the activities of the AC with respect to the oversight of OCC's 
financial reporting processes and enhance the independence and 
objectivity in connection therewith; (iii) promote effective 
communication between the CAE, CCO, CFO and the AC and between the AC 
and the Board; and (iv) in general, provide more explicit descriptions 
of the AC's functions and responsibilities. Specifically, the proposed 
changes would underscore the independence of the AC by providing that 
all members of the AC be independent from OCC's management, as 
determined by the Board from time to time; that the Chair of the AC be 
a Public Director; and clarify that the Management Director is 
ineligible to serve on the AC. The proposed changes would also require 
the AC to meet regularly, and no less than once annually, (as opposed 
to at least annually) with management, the CAE, CCO, and CFO in 
executive sessions to discuss certain private matters and provide the 
authority for the CAE and CCO to communicate directly with the Chair of 
the AC with respect to any of the responsibilities of the AC outside of 
regular meetings to further underscore the independence these roles at 
OCC. In addition, the proposed changes underscore and expand upon the 
AC's oversight role in connection with OCC's financial reporting 
processes, enhance the independence and objectivity in connection 
therewith, and more explicitly describe the AC's functions and 
responsibilities with respect to its oversight of external auditors as 
well as OCC's internal audit and compliance functions (as described in 
detail above). The proposed amendments would also provide that the AC 
shall make such reports to the Board as deemed necessary or advisable.
    OCC believes that by underscoring and reinforcing the independence 
of the AC in OCC's governance framework, promoting effective 
communication between certain officers, the AC, and the Board, and 
providing further clarity around the AC's functions and 
responsibilities, the proposed changes are reasonably designed to 
ensure that OCC's governance arrangements with respect to the role of 
the AC are designed to protect investors and the public interest in 
accordance with Section 17A(b)(3)(F) of the Act \80\ and are clear and 
transparent to fulfill the public interest requirements in Section 17A 
of the Act \81\ applicable to clearing agencies and to support the 
objectives of owners and participants consistent with Rule 17Ad-
22(d)(8).\82\
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    \80\ 15 U.S.C. 78q-1(b)(3)(F).
    \81\ 15 U.S.C. 78q-1.
    \82\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

Amendments to the Compensation and Performance Committee Charter
    OCC proposes amendments to the CPC Charter intended to more clearly 
articulate that the CPC is tasked with assisting the Board in the 
oversight of OCC's overall performance in promptly and accurately 
delivering clearance, settlement and other designated industry services 
and in the accomplishment of other periodically-established corporate 
goals and objectives in light of OCC's systemically important status. 
The proposed amendments would provide a more robust framework for the 
CPC's oversight functions by clearly stating the CPC's role in: (i) 
Recommending the compensation of OCC's Executive Chairman and President 
and approving the compensation of certain other officers, as 
appropriate; (ii) overseeing OCC's Capital Plan, capital structure, 
financial planning and corporate goals and objectives; (iii) overseeing 
OCC's Human Resources program; (iv) overseeing the structure and design 
of the employee compensation, incentive and benefit programs; and (v) 
assisting the Board in reviewing OCC's leadership development and 
succession planning. Accordingly, OCC believes that the proposed 
changes to the CPC Charter are reasonably deigned [sic] to ensure that 
OCC's governance arrangements with respect to the CPC are designed to 
protect investors and the public interest in accordance with Section 
17A(b)(3)(F) of the Act \83\ and are clear and transparent to fulfill 
the public interest requirements in the Act applicable to clearing 
agencies and to support the objectives of owners and participants 
consistent with Rule 17Ad-22(d)(8).\84\
---------------------------------------------------------------------------

    \83\ 15 U.S.C. 78q-1(b)(3)(F).
    \84\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

Amendments to the Risk Committee Charter
    OCC proposes amendments to its RC Charter primarily intended to 
better align the RC Charter with the OCC By-Laws (including, for 
example, changes in the composition requirements of the RC and to 
reflect the adoption of the TC), to restate and elaborate on the 
responsibilities of the RC, and to replace more granular descriptions 
with general statements regarding the RC's functions and 
responsibilities, as described in detail above. In particular, the 
amendments would restate and expand on the RC's functions and 
responsibilities with respect to the oversight of membership 
requirements, margin requirements, the Enterprise Risk Management 
Program, and OCC's risk appetite and risk tolerances. The proposed 
amendments also elaborate on the RC's role in overseeing the adequacy 
and effectiveness of OCC's processes for setting, monitoring and acting 
on risk exposures to OCC presented by banks, depositories, and 
financial market utility counterparties and the processes established 
by OCC for setting, monitoring and managing liquidity needs necessary 
for OCC to perform its obligations as a systemically important 
financial market utility. Additionally, in recognition of OCC's role as 
a systemically important financial market utility, the RC Charter would 
provide that the RC and management would discuss on a regular basis the 
impact on systemic stability that may arise as a result of OCC's 
actions in responding to an extraordinary market event, including the 
impending or actual failure of a clearing member, and the development 
of strategies to mitigate these effects. OCC believes that the proposed 
amendments to the RC Charter provide for comprehensive and robust 
governance arrangements with respect to the RC's oversight role at OCC 
and are therefore designed to promote the prompt and accurate clearance 
and settlement of securities transactions, to assure the safeguarding 
of securities and funds, and in general, to protect investors and the 
public interest in accordance with Section 17A(b)(3)(F) of the Act \85\ 
and are reasonably designed to ensure that OCC's governance 
arrangements are clear and transparent to fulfill the public interest 
requirements of Section 17A of the Act \86\ applicable to clearing 
agencies, to support the objectives of owners and participants, and to 
promote the effectiveness of the clearing agency's

[[Page 51236]]

risk management procedures as required under Rule 17Ad-22(d)(8).\87\
---------------------------------------------------------------------------

    \85\ 15 U.S.C. 78q-1(b)(3)(F).
    \86\ 15 U.S.C. 78q-1.
    \87\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

    Additionally, OCC proposes to delete an existing RC Charter 
provision specifically requiring the RC to periodically review and 
modify the inputs to OCC's margin formula and would amend the RC 
Charter to state that the RC is generally responsible for overseeing 
the processes established for establishing, monitoring and adjusting 
margin consistent with the protection of OCC, Clearing Members, or the 
general public, including reviewing and modifying OCC's margin formula. 
OCC believes that the proposed amendments continue to provide an 
adequate and appropriate oversight framework for the monitoring and 
development of OCC's margin formula and would provide the RC with the 
continued authority to modify margin formula inputs if it deems such 
modification to be appropriate. OCC also proposes to delete a provision 
stating that the RC is responsible for making determinations regarding 
the approval of non-U.S. institutions to issue letters of credit as a 
form of margin asset because this provision does not accurately reflect 
the RC's responsibilities. Accordingly, OCC believes that the proposed 
changes are reasonably designed to be clear and transparent to promote 
the effectiveness of the clearing agency's risk management procedures 
as required under Rule 17Ad-22(d)(8).\88\
---------------------------------------------------------------------------

    \88\ Id.
---------------------------------------------------------------------------

    In addition, OCC proposes amendments to state that the RC shall 
meet regularly, and no less than once annually, (rather than ``at least 
annually'') with the CRO and members of management (as opposed to other 
appropriate corporate officers) in separate executive sessions to 
discuss certain private matters to provide more specificity regarding 
the frequency of these meetings (i.e., that these meetings occur more 
frequently than once per year). The proposed changes would also more 
specifically require that the RC meet in executive session regularly 
with members of management. The RC would continue to have the 
discretion to invite any other officers it deems appropriate to 
meetings in executive session pursuant to the proposed common charter 
amendments described above. OCC believes that the proposed amendments 
provide more clarity and transparency with respect to RC meetings in 
executive session and are therefore reasonably designed to be clear and 
transparent to promote the effectiveness of the clearing agency's risk 
management procedures as required under Rule 17Ad-22(d)(8).\89\
---------------------------------------------------------------------------

    \89\ Id.
---------------------------------------------------------------------------

    Finally, OCC proposes to remove from the RC Charter certain 
mandatory recusal requirements designed to apply to Member Directors of 
the RC. OCC believes that the identification and handling of conflicts 
of interest are already appropriately addressed in its Code of Conduct 
for OCC Directors, which is a publicly available document that governs 
the conduct of all directors equally regardless of category or 
committee assignment. Furthermore, as discussed above, OCC's Directors 
have a fiduciary duty under Delaware law to protect the interests of 
the corporation and to act in the best interests of its shareholders 
and are bound by a duty of loyalty to OCC, which demands that there be 
no conflict between duty and self-interest and that the best interest 
of the corporation and its shareholders takes precedence over any 
interest possessed by a director. OCC believes that this specific 
recusal requirement contained in the RC charter is unnecessary in light 
of the existing requirements under Delaware law and OCC's Code of 
Conduct for OCC Directors. Accordingly, OCC believes that its 
governance arrangements with respect to conflicts of interest for RC 
members continue to be designed, in general, to protect investors and 
the public interest in accordance with Section 17A(b)(3)(F) of the Act 
\90\ and are reasonably designed to ensure that OCC's governance 
arrangements are clear and transparent to fulfill the public interest 
requirements of Section 17A of the Act \91\ 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 as required under Rule 17Ad-22(d)(8).\92\
---------------------------------------------------------------------------

    \90\ 15 U.S.C. 78q-1(b)(3)(F).
    \91\ 15 U.S.C. 78q-1.
    \92\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

Amendments to the Governance and Nominating Committee Charter
    OCC proposes amendments to the GNC Charter to reflect the 
elimination of term limits for Public Directors as discussed above, to 
state that attendance of GNC meetings by telephone is discouraged, and 
to delete a provision stating that a designated officer of management 
shall serve to assist the Committee and act as a liaison between staff 
and the Committee. The proposed amendments are primarily intended to 
conform the GNC Charter with proposed changes to the By-Laws and 
existing practices contained in other Committee Charters and would 
continue to provide for appropriate governance arrangements with 
respect to the GNC's oversight role. OCC therefore believes the 
proposed changes are reasonably designed to ensure that OCC's 
governance arrangements are clear and transparent to fulfill the public 
interest requirements of Section 17A of the Act \93\ applicable to 
clearing agencies as required under Rule 17Ad-22(d)(8).\94\
---------------------------------------------------------------------------

    \93\ 15 U.S.C. 78q-1.
    \94\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

Amendments to the Technology Committee Charter
    OCC is proposing amendments to its TC Charter to require that the 
Committee meet regularly, and no less than once annually, with OCC's 
CSO and to provide that the CSO is authorized to communicate with 
directly with [sic] the Chair of the TC in between meetings of the 
Committee. OCC also proposes to amend the TC Charter to provide that 
the TC shall make such reports to the Board as deemed necessary or 
advisable. The proposed amendments are designed to strengthen the 
autonomy and independence of the CSO role at OCC and to promote 
effective communication between the CSO and the TC and between TC and 
the Board and are in line with requirements in other Committee 
Charters. OCC therefore believes the proposed amendments are designed 
to protect investors and the public interest in accordance with Section 
17A(b)(3)(F) of the Act \95\ and are clear and transparent to fulfill 
the public interest requirements in the Act applicable to clearing 
agencies and to support the objectives of owners and participants 
consistent with Rule 17Ad-22(d)(8).\96\
---------------------------------------------------------------------------

    \95\ 15 U.S.C. 78q-1(b)(3)(F).
    \96\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

Amendment No. 1 to Amended and Restated Stockholders Agreement
    OCC also proposes to adopt Amendment No. 1 to Amended and Restated 
Stockholders Agreement in order to provide for Board action in the 
nomination process for Member Directors, Public Directors, the 
Executive Chairman and Member Vice Chairman in conformance with the 
process set forth in the GNC Charter. The proposed change would ensure 
an appropriate level of Board oversight and participation in the 
nomination process and provide consistency between the processes 
described in the GNC Charter and Amended and Restated Stockholders 
Agreement thereby ensuring that OCC's governance

[[Page 51237]]

arrangements are clear and transparent to fulfill the public interest 
requirements of Section 17A of the Act \97\ applicable to clearing 
agencies as required under Rule 17Ad-22(d)(8).\98\
---------------------------------------------------------------------------

    \97\ 15 U.S.C. 78q-1.
    \98\ 17 CFR 240.17Ad-22(d)(8).
---------------------------------------------------------------------------

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

    OCC does not believe that the proposed rule change would have any 
impact or impose any burden on competition.\99\ The proposed changes to 
OCC's By-Laws, the Board Charter, and the Committee Charters would 
promote the effectiveness of OCC's Board and Board Committees' 
oversight on OCC's business, risk management, and operational processes 
and provide more clarity and transparency with respect to OCC's 
governance arrangements. The proposed rule change would also enhance 
the descriptions of the duties and functions of the Board and its 
members as well as the AC, the CPC, and the RC. The proposed rule 
change also promotes more effective governance arrangements for OCC, 
for example, by removing term limits for Public Directors and requiring 
the Chair of the AC and the CPC to be Public Directors. As a result, 
OCC does not believe that the proposed changes would have any impact 
between or among clearing agencies, Clearing Members, or other market 
participants. The proposed modifications to OCC's governance 
arrangements would not unfairly inhibit access to OCC's services or 
disadvantage or favor any particular user in relationship to another 
user because they relate to the governance structure of OCC, which 
affects all users, and do not relate directly to any particular service 
or particular use of OCC's facilities.
---------------------------------------------------------------------------

    \99\ 15 U.S.C. 78q-1(b)(3)(I).
---------------------------------------------------------------------------

    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 
have any impact or impose a burden on competition.

(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-2016-002 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-OCC-2016-002. 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 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_16_002.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-2016-002 and should be submitted on 
or before August 24, 2016.
---------------------------------------------------------------------------

    \100\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\100\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-18320 Filed 8-2-16; 8:45 am]
BILLING CODE 8011-01-P