[Federal Register Volume 83, Number 44 (Tuesday, March 6, 2018)]
[Notices]
[Pages 9562-9564]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-04484]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82793; File No. SR-OCC-2018-004]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Suspension of and Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove the Proposed Rule Change To Revise The Options 
Clearing Corporation's Schedule of Fees

February 28, 2018.

I. Introduction

    On January 19, 2018, The Options Clearing Corporation (``OCC'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change, File No. SR-OCC-2018-004, pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 
19b-4 thereunder.\2\ The proposed rule change was immediately effective 
upon filing with the Commission pursuant to Section 19(b)(3)(A) of the 
Act.\3\ The proposed rule change was published for comment in the 
Federal Register on February 2, 2018.\4\ Under Section 19(b)(3)(C) of 
the Act,\5\ the Commission is hereby: (i) Temporarily suspending File 
No. SR-OCC-2018-004; and (ii) instituting proceedings to determine 
whether to approve or disapprove File No. SR-OCC-2018-004.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ Securities Exchange Act Release No. 82596 (Jan. 30, 2018), 
83 FR 4944 (Feb. 2, 2018) (SR-OCC-2018-004) (``Notice'').
    \5\ 15 U.S.C. 78s(b)(3)(C).
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II. Description of the Proposed Rule Change

    The proposed rule change by OCC would revise OCC's Schedule of Fees 
effective March 1, 2018 to implement an increase in clearing fees in 
accordance with OCC's Fee Policy,\6\ which was adopted as part of its 
plan to raise additional capital (``Capital Plan'').\7\ As stated in 
the Notice, OCC filed the proposed rule change to revise OCC's Schedule 
of Fees in accordance with its Fee Policy and set fees at a level 
designed to cover OCC's operating expenses and maintain a Business Risk 
Buffer of 25%.\8\
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    \6\ See Notice at 4944-45. OCC also filed a proposed rule change 
with the Commission to revise its Fee Policy to provide that 
proposed fee changes are required to be implemented no sooner than 
thirty (30) days from the date of filing of the proposed rule change 
concerning such fee change (as opposed to sixty (60) days). See 
Securities Exchange Act Release No. 82576 (Jan. 24, 2018), 83 FR 
4324 (Jan. 30, 2018) (SR-OCC-2018-001). OCC submitted the proposed 
changes to its Fee Policy to the Commodity Futures Trading 
Commission (``CFTC'') under CFTC Regulation 40.6. OCC stated that 
implementation of the proposed fee change on March 1, 2018 would 
require either: (i) Commission approval of SR-OCC-2018-001 and 
certification of the Fee Policy changes in SR-OCC-2018-001 under 
CFTC Regulation 40.6 or (ii) an exception to the 60-day notice 
period provision in the Fee Policy authorized by OCC's Board of 
Directors and the holders of all of the outstanding Class B Common 
Stock of OCC.
    \7\ See Securities Exchange Act Release No. 77112 (February 11, 
2016), 81 FR 8294 (February 18, 2016) (SR-OCC-2015-02) (``Approval 
Order''). The Capital Plan was later subject to judicial review by 
the U.S. Court of Appeals for the District of Columbia Circuit 
(``D.C. Circuit''), which remanded the Approval Order to the 
Commission to further analyze whether the Capital Plan is consistent 
with the Act. Susquehanna Int'l Grp., LLP v. SEC, 866 F.3d 442 (D.C. 
Cir. 2017). The Commission's review of the Plan on remand is 
ongoing, and the Capital Plan remains in effect during this ongoing 
review.
    \8\ See Notice at 4944-45. The Business Risk Buffer is an amount 
of fee revenue that OCC targets above its anticipated operating 
expenses to allow for unexpected fluctuations in operating expenses, 
business capital needs, and regulatory capital requirements.
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    OCC stated that it recently reviewed its current Schedule of Fees 
\9\ against projected revenues and expenses for 2018 in accordance with 
its Fee Policy to determine whether the Schedule of Fees was sufficient 
to cover OCC's anticipated operating expenses and achieve the Business 
Risk Buffer. OCC stated that it analyzed: (i) Expenses budgeted for 
2018; (ii) projected other revenue streams for 2018; (iii) projected 
volume mix; and (iv) projected volume growth for 2018. After this 
review, OCC determined that the current fee schedule is set at a level 
that would be insufficient to ensure that OCC achieves its Business 
Risk Buffer as required under the Fee Policy.\10\ OCC stated that it 
arrived at the proposed fee schedule below by determining the figures 
that provide the best opportunity for OCC to achieve coverage of its 
anticipated operating expenses plus a Business Risk Buffer. 
Accordingly, OCC proposed the Schedule of Fees set forth in the table 
below:
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    \9\ OCC previously revised its Schedule of Fees effective 
December 1, 2016, to implement a fee increase in accordance with the 
Fee Policy. See Securities Exchange Act Release No. 79028 (October 
3, 2016), 81 FR 69885 (October 7, 2016) (SR-OCC-2016-012).
    \10\ OCC provided a summary of its analysis in a confidential 
Exhibit 3 to the filing.

[[Page 9563]]



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                     Current fee schedule                                    Proposed fee schedule
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                                                                   Trades with
      Trades with contracts of:             Current fee           contracts of:             Proposed fee
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1-1,100.............................  $0.050/contract........             1-1,018  $0.054/contract.
>1,100..............................  $55/trade..............              >1,018  $55/trade.
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    OCC proposed to modify its Schedule of Fees to: (i) Increase its 
per contract clearing fee from $0.050 to $0.054 per contract; and (ii) 
adjust the quantity of contracts at which the fixed, per trade clearing 
fee begins from greater than 1,100 contracts per trade to greater than 
1,018 contracts per trade. OCC stated that the proposed changes are 
designed to target a level of revenues sufficient to cover OCC's 
operating expenses plus the Business Risk Buffer while continuing to 
maintain its existing fixed, per trade, fee at $55 per trade.
    OCC stated that in accordance with its Fee Policy, OCC will 
continue to monitor cleared contract volume and operating expenses to 
determine if further revisions to OCC's Schedule of Fees are required 
so that monies received from clearing fees cover its operating expenses 
plus the Business Risk Buffer.\11\
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    \11\ Any subsequent changes to OCC's Schedule of Fees would be 
the subject of a subsequent proposed rule change filed with the 
Commission.
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III. Summary of Comment Received

    On February 22, 2018, the Commission received a comment letter on 
the proposed rule change from Susquehanna International Group, LLP 
(``SIG'').\12\ In the comment letter, SIG expressed concern regarding 
whether the information provided by OCC in the Notice was sufficient to 
allow for meaningful public comment on the proposal.\13\ Specifically, 
SIG asserted that OCC's Shareholder Exchanges are incented to 
overestimate OCC's expenses, because such overestimation would lead to 
increased dividends.\14\ SIG asserted further that, without access to 
the expense projections filed as a confidential exhibit to the proposed 
rule change, the public has no basis to believe that the proposed fee 
increase is reasonable and no ability to comment critically on OCC's 
supporting analysis.\15\ In addition, SIG characterized OCC's proposal 
to increase fees as a negative consequence of the Capital Plan.\16\
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    \12\ See letter from Richard J. McDonald, SIG, dated February 
14, 2018, to Brent J. Fields, Secretary, Commission (``SIG 
Letter''). See comments on the proposed rule change (SR-OCC-2018-
004), https://www.sec.gov/comments/sr-occ-2018-004/occ2018004.htm.
    \13\ SIG Letter at 2.
    \14\ SIG Letter at 3. OCC is owned by Chicago Board Options 
Exchange, Incorporated (``CBOE''); International Securities 
Exchange, LLC; NASDAQ OMX PHLX, LLC; NYSE American LLC; and NYSE 
Arca, Inc. See Approval Order at 8294.
    \15\ SIG Letter at 2.
    \16\ Id. at 1. OCC's Board of Directors decided that OCC was 
significantly undercapitalized, and, therefore, proposed an 
expedited plan to substantially increase OCC's capitalization. See 
Approval Order at 8294. Subsequent to the Approval Order, parties, 
including SIG, filed a petition for review of the Approval Order in 
the DC Circuit, challenging the Commission's Approval Order. The DC 
Circuit ultimately remanded the case to the Commission for further 
proceedings without reaching the merits of the Capital Plan. 
Susquehanna, 866 F.3d at 443. The court did not vacate the Approval 
Order prior to remand, instead leaving the Capital Plan in place and 
remanding to give the Commission an opportunity to reevaluate the 
Capital Plan. Id. at 451. As noted above, the Commission's 
reconsideration of the Capital Plan is ongoing.
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IV. Suspension of File No. SR-OCC-2018-004

    Pursuant to Section 19(b)(3)(C) of the Act,\17\ at any time within 
60 days of the date of filing of a proposed rule change pursuant to 
Section 19(b)(1) of the Act,\18\ the Commission summarily may 
temporarily suspend the change in the rules of a self-regulatory 
organization if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act. As 
discussed further below, the Commission believes a temporary suspension 
of the proposed rule change is warranted here to allow for additional 
analysis of the proposed rule change's consistency with the Act and the 
rules thereunder. In particular, the Commission finds that it is 
appropriate in the public interest, for the protection of investors, 
and otherwise in furtherance of the purposes of the Act, to temporarily 
suspend the proposed rule change to consider whether the proposed rule 
change satisfies the standards under the Act and the rules thereunder 
requiring, among other things, that clearing agency rules provide for 
the equitable allocation of reasonable dues, fees and other charges 
among its participants.
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    \17\ 15 U.S.C. 78s(b)(3)(C).
    \18\ 15 U.S.C. 78s(b)(1).
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V. Proceedings To Determine Whether To Approve or Disapprove File No. 
SR-OCC-2018-004

    The Commission is instituting proceedings pursuant to Sections 
19(b)(3)(C) \19\ and 19(b)(2)(B) of the Act \20\ to determine whether 
the proposed rule change should be approved or disapproved.
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    \19\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \20\ 15 U.S.C. 78s(b)(2)(B).
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    Institution of proceedings does not indicate that the Commission 
has reached any conclusions with respect to any of the issues involved. 
Rather, the Commission seeks and encourages interested persons to 
provide additional comment on the proposed rule change to inform the 
Commission's analysis of whether to disapprove the proposed rule 
change.
    Pursuant to Section 19(b)(2)(B) of the Act,\21\ the Commission is 
providing notice of the grounds for disapproval under consideration. As 
noted above, the Fee Policy to which the proposed rule change relates 
was adopted as part of OCC's Capital Plan, and the Capital Plan remains 
subject to Commission review.\22\ The commenter asserts that the fee 
increase contradicts previous statements by OCC regarding ``OCC's 
assurances of low fees in its Capital Plan submissions,'' calls into 
question the consistency of the Capital Plan with the Act, and is 
otherwise without basis.\23\ The Commission believes it is appropriate 
to institute proceedings to assess whether the considerations currently 
before the Commission in connection with its review of the Capital Plan 
on remand are implicated by the issues raised by the proposed fee 
change.\24\ Moreover, the commenter

[[Page 9564]]

argues that, without access to the information provided by OCC on a 
confidential basis, the public cannot ``meaningfully comment on the 
propriety of the proposed fee increase.'' \25\ The Commission is also 
instituting proceedings to allow for additional consideration and 
comment on this and other issues raised by the commenter. Finally, the 
Commission believes that OCC's proposed rule change raises questions as 
to whether it is consistent with Section 17A(b)(3)(D) of the Act,\26\ 
which requires clearing agency rules to provide for the equitable 
allocation of reasonable dues, fees and other charges among its 
participants.
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    \21\ 15 U.S.C. 78s(b)(2)(B).
    \22\ See supra note 7.
    \23\ SIG Letter at 2.
    \24\ The Commission notes that one of the issues before us in 
considering the Capital Plan is the contention by some of those 
commenting on the Plan that the Plan will lead to an increase in 
fees. In responding to these comments in our initial approval of the 
Plan, we observed that ``[t]he Exchange Act rule filing requirements 
for fee changes provide an opportunity for public comment and an 
opportunity for the Commission to review the change, summarily 
suspend it and institute proceedings to ultimately approve or 
disapprove the change, as applicable, to ensure an SRO's rules meet 
regulatory requirements.'' See Approval Order at 8303.
    \25\ SIG Letter at 3.
    \26\ 17 CFR 240.17Ad-22(d)(7).
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VI. Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
proposed fee change. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed fee change 
is consistent with Section 17A(b)(3)(D) of the Act \27\ or any other 
provision of the Act, rules, and regulations thereunder. 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:
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    \27\ 15 U.S.C. 78q-1(b)(3)(D).
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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 No. SR-OCC-2018-004 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 No. SR-OCC-2018-004. 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 website (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 website 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 such filing also will be available for inspection 
and copying at the principal office of OCC and on OCC's website at 
https://www.theocc.com/about/publications/bylaws.jsp.
    All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly.
    All submissions should refer to File No. SR-OCC-2018-004 and should 
be submitted on or before March 27, 2018. Any person who wishes to file 
a rebuttal to any other person's submission must file that rebuttal on 
or before April 10, 2018.

VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\28\ that File No. SR-OCC-2018-004, be and hereby is, temporarily 
suspended. In addition, the Commission is instituting proceedings to 
determine whether the proposed rule changes should be approved or 
disapproved.
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    \28\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-04484 Filed 3-5-18; 8:45 am]
BILLING CODE 8011-01-P