[Federal Register Volume 83, Number 175 (Monday, September 10, 2018)]
[Notices]
[Pages 45706-45720]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-19501]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84021; File No. SR-OCC-2018-012]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change Related to The Options 
Clearing Corporation's Board of Directors and Board Committee Charters

September 4, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on 
August 24, 2018, 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 primarily by OCC. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

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

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

    The proposed rule change by OCC concerns changes to its (1) Audit 
Committee Charter, (2) Compensation and Performance Committee Charter, 
(3) Governance and Nominating Committee Charter, (4) Risk Committee 
Charter, (5) Technology Committee Charter and (6) Board of Directors 
Charter in connection with requirements applicable to OCC under Rules 
17Ad-22(e)(2) (Governance) and (3) (Framework for the Comprehensive 
Management of Risks).\3\
---------------------------------------------------------------------------

    \3\ 17 CFR 240.17Ad-22(e)(2) and (3).
---------------------------------------------------------------------------

    The charters are attached as Exhibits 5A through F to the filing 
[sic]. Material proposed to be added to the charters as currently in 
effect is marked by double underlining and material proposed to be 
deleted is marked by strikethrough text. The proposed rule change, 
including Exhibits 5A through F, is available on OCC's website at 
https://www.theocc.com/about/publications/bylaws.jsp. The proposed rule 
change does not require any changes to the text of OCC's By-Laws or 
Rules. All terms with initial capitalization that are not otherwise 
defined herein have the same meaning as set forth in the OCC By-Laws 
and Rules.\4\
---------------------------------------------------------------------------

    \4\ OCC's By-Laws and Rules can be found on OCC's public 
website: http://optionsclearing.com/about/publications/bylaws.jsp.
---------------------------------------------------------------------------

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 the proposed rule change is to make certain changes 
to OCC's (1) Audit Committee (``AC'') Charter (``AC Charter''), (2) 
Compensation and Performance Committee (``CPC'') Charter (``CPC 
Charter''), (3) Governance and Nominating Committee (``GNC'') Charter 
(``GNC Charter''), (4) Risk Committee (``RC'') Charter (``RC 
Charter''), (5) Technology Committee (``TC'') Charter

[[Page 45707]]

(``TC Charter'') and (6) Board of Directors (``Board'') Charter 
(``Board Charter'') \5\ for consistency with requirements that are 
applicable to OCC under Rules 17Ad-22(e)(2) (Governance) and (3) 
(Framework for the Comprehensive Management of Risks).\6\ As described 
in greater detail below, the proposed changes are designed, in general, 
to clarify and assign certain responsibilities for the governance and 
oversight of OCC among the Board and its respective committees in order 
to provide for governance arrangements that are clear and transparent 
and that specify clear and direct lines of responsibility. In turn, 
these changes would help ensure that OCC has governance arrangements 
that are organized to support its ability to promptly and accurately 
serve Clearing Members and the markets for which it clears and 
effectively manage the range of risks that arise in the course of 
providing such clearance and settlement services.
---------------------------------------------------------------------------

    \5\ As discussed below, the changes to the Board Charter would 
involve incorporating provisions from OCC's Corporate Governance 
Principles (``CGP'') and changing the title of the document to the 
Board Charter and Corporate Governance Principles.
    \6\ 17 CFR 240.17Ad-22(e)(2) and (3).
---------------------------------------------------------------------------

Background
    On September 28, 2016, the Commission adopted amendments to Rule 
17Ad-22 \7\ and added new Rule 17Ab2-2 \8\ pursuant to Section 17A of 
the Securities Exchange Act of 1934, as amended (``Exchange Act'' or 
``Act''),\9\ and the Payment, Clearing, and Settlement Supervision Act 
of 2010 \10\ to establish enhanced standards for the operation and 
governance of those clearing agencies registered with the Commission 
that meet the definition of a ``covered clearing agency,'' as defined 
by Rule 17Ad-22(a)(5) \11\ (collectively, the new and amended rules are 
herein referred to as the ``CCA rules''). OCC meets the definition of a 
covered clearing agency and is therefore subject to the requirements of 
the CCA rules.\12\
---------------------------------------------------------------------------

    \7\ Securities Exchange Act Release No. 78961 (September 28, 
2016), 81 FR 70786, 70812 (October 13, 2016) (``CCA Adopting 
Release''); see also 17 CFR 240.17Ad-22.
    \8\ 17 CFR 240.17Ab2-2.
    \9\ 15 U.S.C. 78q-1.
    \10\ 12 U.S.C. 5461 et seq.
    \11\ 17 CFR 240.17Ad-22(a)(5).
    \12\ Id.
---------------------------------------------------------------------------

Relevance of CCA Rules Regarding OCC Charters
    Certain of the CCA rules impose requirements regarding governance 
arrangements and OCC's risk management framework that relate to its (1) 
AC Charter, (2) CPC Charter, (3) GNC Charter, (4) RC Charter, (5) TC 
Charter and (6) Board Charter. Specifically, Rules 17Ad-22(e)(2) and 
(3) require OCC to, among other things, establish, implement, maintain, 
and enforce written policies and procedures reasonably designed to, as 
applicable:
     Provide for governance arrangements that are clear and 
transparent; clearly prioritize safety and efficiency of the covered 
clearing agency; support the public interest requirements in Section 
17A of the Act \13\ and the objectives of owners and participants; 
establish that the board of directors and senior management have 
appropriate experience and skills to discharge their duties and 
responsibilities; specify clear and direct lines of responsibility; 
consider the interests of enumerated stakeholders;\14\ and
---------------------------------------------------------------------------

    \13\ 17 CFR 240.17Ad-22(e)(2). The public interest requirements 
in Section 17A of the Act include that the ``prompt and accurate 
clearance and settlement of securities transactions, including the 
transfer of record ownership and the safeguarding of securities and 
funds related thereto, are necessary for the protection of investors 
and persons facilitating and acting on behalf of investors.'' See 15 
U.S.C. 78q-1(a)(1)(A).
    \14\ See 17 CFR 240.17Ad-22(e)(2).
---------------------------------------------------------------------------

     maintain a sound risk management framework for 
comprehensively managing legal, credit, liquidity, operational, general 
business, investment, custody, and other risks that arise in or are 
borne by the covered clearing agency.\15\
---------------------------------------------------------------------------

    \15\ See 17 CFR 240.17Ad-22(e)(3).
---------------------------------------------------------------------------

    OCC is proposing changes to its Board and Board committee charters 
to better align its governance and risk management processes with these 
requirements, including by shifting responsibility to the Board for 
enterprise risk management and aligning committee responsibilities 
accordingly. These changes are described below regarding each charter 
and key aspects of the proposed changes are noted by bullets at the 
beginning of each section. Many of the proposed changes are intended 
only to reduce redundancy and better organize the content of the 
charters and in some cases would remove provisions for readability in 
light of the fact that they are not required. Therefore, OCC proposes 
to relocate existing content and change word choices for readability 
and to more clearly state what a committee is authorized to do or must 
do, which OCC believes would not substantively alter the 
responsibilities or activities of the relevant committee.\16\ Because 
such changes would not change the operation or meaning of the charter 
provisions, they are not further described herein. OCC also notes that 
the Board Charter and committee charters are intended to set forth key 
responsibilities, procedures, and guiding principles for the Board and 
the committees. The charters therefore do not enumerate every action 
that may be taken by the Board or committees, and OCC notes that its 
By-Laws, Rules and policies also set forth certain duties and 
responsibilities of the Board and committees (e.g., Sections 4 
(Committees) and 8 (Power of the Board of Directors) of Article III of 
OCC's By-Laws).
---------------------------------------------------------------------------

    \16\ The following are examples of such changes. All of the 
charters would be amended to state that the Board or the relevant 
committee will review the charter ``at least once every twelve 
months'' instead of ``annually'' to provide further clarity around 
the intended frequency. The statement in the TC Charter that the TC 
``shall also have the authority to perform any other duties'' 
consistent with the TC Charter would be revised to provide that the 
TC ``is authorized to perform any other duties'' consistent with the 
TC Charter. The statement in the AC Charter that the committee shall 
``approve material changes in accounting principles and practices'' 
would instead state that it ``is authorized to approve material 
changes in accounting principles and practices.'' Consistent with 
this change, where a charter currently states that the Board or a 
committee ``shall approve'' a particular matter, certain changes are 
proposed, as appropriate, to state instead that the Board or a 
committee is ``authorized to approve.'' OCC believes such changes 
properly clarify the oversight role of the Board and the committees 
and that approval is not mandatory.
---------------------------------------------------------------------------

Common Changes
    Certain of the proposed changes represent common changes that would 
be made in all or most of the charters.\17\ For instance, OCC proposes 
to amend the charters to provide that in carrying out their 
responsibilities the Board and the committees shall prioritize the 
safety and efficiency of OCC, generally support the stability of the 
broader financial system and consider legitimate interests of Clearing 
Members, customers of Clearing Members and other relevant stakeholders, 
including its Exchange Shareholders and other participant exchanges, 
taking into account prudent risk management standards (including 
systemic risk mitigation) and industry best practices, as is consistent 
with Rules 17Ad-22(e)(2)(ii), (iii) and (vi).\18\ OCC also

[[Page 45708]]

proposes to amend the committee charters to address committee member 
vacancies to provide that in the event of a vacancy, the applicable 
committee will continue to undertake its responsibilities, so long as 
the remaining committee members are capable of satisfying the quorum 
requirement.\19\ In addition, to promote compliance with the 
requirement in Rule 17Ad-22(e)(2)(v) \20\ that governance arrangements 
provide for clear and direct lines of responsibility, OCC proposes to 
amend all of the charters to specify that the Board and each committee 
may delegate authority to one or more designated officers of OCC or may 
refer a risk under its oversight to another committee or the Board as 
advisable or appropriate. The proposed revisions would further provide, 
however, that the Board or the committee would retain the obligation to 
oversee any such delegation or referral and assure itself that 
delegation and reliance on the work of any delegate is reasonable. OCC 
also proposes amendments to acknowledge, where relevant, that its 
Executive Chairman (``EC'') also serves as its Chief Executive Officer 
(``CEO'') and therefore certain responsibilities and considerations 
that currently apply to the EC would also apply regarding the CEO. All 
charters would also be revised to state that a role of the Board or the 
committee, as applicable, is to advise management. In addition, 
committees would be required to submit their charters to the GNC for 
potential approval in addition to submitting them to the Board in 
connection with a required review once every twelve months of committee 
charters, consistent with Rule 17Ad-22(e)(3)(i).\21\ Moreover, 
consistent with Rules 17Ad-22(e)(2)(i) and (v) regarding the 
establishment of governance arrangements that are clear and transparent 
and that specify clear and direct lines of responsibility,\22\ changes 
would be made to clarify that where the Board or a committee has 
authority to approve reports or other proposals in its business 
judgment, such as materials provided by management, it is not obligated 
to approve, and related modifications would articulate a clear means of 
recourse for the committee or the Board if it does not approve.\23\
---------------------------------------------------------------------------

    \17\ Certain variations on some of these changes that are 
specific to the Board Charter are also described below in the 
section addressing the Board Charter.
    \18\ See 17 CFR 240.17Ad-22(e)(2)(ii) (requiring governance 
arrangements that prioritize the covered clearing agency's ``safety 
and efficiency''), (e)(2)(iii) (requiring governance arrangements 
that support the ``public interest requirements'' applicable to 
covered clearing agencies), and (e)(2)(vi) (requiring governance 
arrangements that consider the interests of all ``relevant 
stakeholders'').
    \19\ This same change would not be added to the Board charter. 
It would also not be added to the GNC Charter because it is already 
addressed.
    \20\ 17 CFR 240.17Ad-22(e)(2)(v).
    \21\ See 17 CFR 240.17Ad-22(e)(3)(i) (requiring periodic review 
and annual Board approval of the CCA's risk management framework).
    \22\ 17 CFR 240.17Ad-22(e)(2)(i) and (v).
    \23\ The purpose of these changes is to promote governance 
arrangements that clearly prioritize the safety and efficiency of 
OCC and specify clear and direct lines of responsibility in its 
governance arrangements. See 17 CFR 240.17Ad-22(e)(2)(ii) and (v).
---------------------------------------------------------------------------

    The committee charters would also be amended to provide that each 
committee shall perform and is authorized to perform such other 
responsibilities and functions as shall from time to time be assigned 
to it under the By-Laws and Rules, other policies, or delegated to it 
by the Board.\24\ OCC also proposes to amend the committee charters to 
provide that each committee shall perform any other duties consistent 
with their respective charters as the committee deems necessary or 
appropriate, or as the Board shall further delegate to the particular 
committee.\25\ OCC believes that these changes will provide for 
flexibility for each committee to supervise and account for matters 
naturally within the scope of their responsibility or that may be 
assigned to them by the Board. OCC believes these changes also promote 
compliance with Rule 17Ad-22(e)(3) \26\ by establishing a sound risk 
management framework to comprehensively manage the varying risks and 
other matters each committee must manage and to effectively identify 
new risks that may arise.
---------------------------------------------------------------------------

    \24\ OCC notes that a comparable provision to this exists in the 
RC Charter.
    \25\ OCC notes that comparable language currently appears in the 
AC Charter, GNC Charter, and TC Charter.
    \26\ 17 CFR 240.17Ad-22(e)(3).
---------------------------------------------------------------------------

    Finally, in order to the promote compliance with the requirement in 
Rule 17Ad-22(e)(2)(i) \27\ that OCC's governance arrangements be clear 
and transparent, OCC proposes to make a number of changes to its Board 
committee charters to clarify that, where certain actions were required 
to be performed ``annually'' under the charters, those actions would 
now be required to occur ``each calendar year.'' OCC believes that it 
is appropriate to make clear it in its rules actions which the Board or 
a committee may be required to perform on an every twelve months-basis, 
particularly in cases where a regulatory requirement exists (e.g., Risk 
Committee requirement to review and have the authority to approve at 
least once every twelve months the adequacy of OCC's Recovery and 
Orderly Wind-Down Plan and recommend approval thereof to the Board) and 
those which they would only be required to perform on a calendar year 
basis. These changes include amending the committee charters to provide 
that the following activities must occur on a calendar year basis: (i) 
The appointment of directors to particular committees; (ii) that 
committees meet regularly, and no less than once per calendar year, 
with certain members of management in separate executive sessions; 
(iii) that each committee must provide reports to the Board summarizing 
its activities for the prior year; (iv) that each committee confirm to 
the Board that all responsibilities outlined in its Charter have been 
carried out; and (v) that each committee assess its and its individual 
members' performance and provide results of such assessment to the GNC 
\28\ for review.
---------------------------------------------------------------------------

    \27\ 17 CFR 240.17Ad-22(e)(2)(i).
    \28\ The GNC is required to provide the results of its own 
assessment to the Board.
---------------------------------------------------------------------------

AC Charter
    OCC proposes modifications to its AC Charter. Key aspects of the 
proposed changes regarding the AC Charter include:
     New responsibility for oversight of legal risks, including 
existing, pending and threatened litigation;
     Transfer of the oversight of Clearing Member 
investigations and enforcement matters to the RC;
     Increased oversight of OCC's compliance department, 
including its structure, resources and budget; and
     Introduction of mandatory periodic reporting from OCC's 
Chief Audit Executive (``CAE''), Chief Compliance Officer (``CCO'') and 
General Counsel (``GC'').
    OCC proposes to amend the AC Charter to establish new 
responsibilities for the AC that include reviewing the impact of 
litigation and other legal matters that may have a material impact on 
OCC's financial statements and overseeing the structure, independence 
and objectivity, staffing, resources, and budget of OCC's compliance 
and audit departments. OCC believes that it is appropriate to extend 
these responsibilities to the AC since they are highly germane to its 
current functions (e.g., assisting the Board in overseeing OCC's 
financial reporting process, OCC's system of internal control, OCC's 
auditing process, and OCC's process for monitoring compliance with 
applicable laws and regulation) and would promote compliance with Rule 
17Ad-22(e)(2)(v) \29\ by specifying clear and direct lines of 
responsibility. In addition, the responsibility for the oversight of 
Clearing Member investigations and enforcement would be transferred to 
the RC as the RC has the required expertise to properly oversee the 
process (as discussed further below). The AC Charter would also be

[[Page 45709]]

amended to clarify that the AC shall oversee the independence and 
objectivity of the internal audit department, consistent with OCC's 
obligations under Rules 17Ad-22(e)(3)(iii) and (iv) \30\ to provide 
internal audit personnel with sufficient authority, resources, 
independence from management, and access to the board of directors and 
provide for oversight of internal audit personnel by an independent 
audit committee of the board of directors. Under the proposed rule 
change, the AC Charter would also be amended to provide that the AC is 
authorized to approve deviations to the audit plan that may arise over 
the course of an audit, which OCC believes is a natural extension of 
the AC's role and responsibilities. In addition, OCC proposes to amend 
the AC Charter to provide that the AC shall identify risk issues 
relating to the areas that the committee oversees that should be 
escalated to the Board for its review and consideration, which OCC 
believes promotes compliance with Rule 17Ad-22(e)(2)(v) \31\ by 
specifying clear and direct lines of responsibility.
---------------------------------------------------------------------------

    \29\ 17 CFR 240.17Ad-22(e)(2)(v).
    \30\ 17 CFR 240.17Ad-22(e)(3)(iii) and (iv).
    \31\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

    OCC also proposes to amend the AC Charter to provide that certain 
mandatory reports be sent to the AC for review, including quarterly 
reports from the CAE regarding the internal audit plan and the GC 
regarding existing, pending, or threatened litigation.\32\ OCC notes 
that either the AC or another committee already has responsibilities in 
these areas and OCC believes that such quarterly reports will help 
provide the AC with the necessary information to appropriately 
discharge its duties and responsibilities.\33\
---------------------------------------------------------------------------

    \32\ OCC proposes certain other streamlining changes to the AC 
Charter, such as providing that the AC will review OCC's Reporting 
Concerns and Whistleblower Policy (and specifying that such review 
will occur each calendar year) rather than providing a more detailed 
description of what the reporting concerns and whistleblower 
procedures under the relevant policy entail.
    \33\ OCC also believes that these quarterly reports to the AC 
help specify clear and direct lines of responsibility in OCC's 
governance arrangements by ensuring that these officers keep the AC 
apprised of OCC's ongoing performance or handling of these matters, 
which in turn will allow the AC to more effectively carry out its 
oversight functions and the responsibilities associated therewith. 
See 17 CFR 240.17Ad-22(e)(2)(v) and (e)(3).
---------------------------------------------------------------------------

    OCC also proposes to streamline its description of the AC's 
responsibility with respect to its compliance department by providing 
more generally that the AC shall review ongoing compliance monitoring 
activities by reviewing reports and other communications prepared by 
the CCO and inquire of management regarding steps taken to deal with 
items raised. As a result of this change, the AC Charter would no 
longer specify that the AC is responsible for approving the annual 
Compliance Testing Plan, monitoring progress against the annual 
Compliance Testing Plan, and approving any recommendations by the CCO 
relating to that plan. The purpose of this change is to shift OCC's 
compliance department to a monitoring role and away from its historic 
role of creating a specific plan to follow. This change would also help 
facilitate the transition of validation responsibilities to OCC's 
internal audit department, over which the compliance department would 
have monitoring responsibilities. OCC believes that this change 
promotes governance arrangements that are clear and transparent in 
accordance with Rule 17Ad-22(e)(2)(i).\34\
---------------------------------------------------------------------------

    \34\ 17 CFR 240.17Ad-22(e)(2)(i).
---------------------------------------------------------------------------

    In a number of instances, OCC proposes to amend the AC charter to 
provide that the AC is authorized to perform certain functions. For 
example, OCC proposes to amend the AC charter to provide that the AC is 
authorized to approve management's recommendation to appoint or replace 
the CCO or CAE, which is a governance arrangement that OCC believes is 
consistent with Rules 17Ad-22(e)(3)(iii) and (iv) \35\ in that it 
furthers the AC's oversight of the CCO and CAE and their independence 
from management.\36\ OCC believes that framing the AC's 
responsibilities in this manner would provide appropriate flexibility 
for the committee to carry out its oversight and advisory 
responsibilities using its business judgment. OCC also proposes to 
amend the AC Charter (and the RC Charter) to transfer responsibility 
for reviewing the investigation and enforcement outcomes of 
disciplinary actions taken by OCC against Clearing Members from the AC 
to the RC. OCC believes that the RC is appropriately situated to review 
disciplinary actions against Clearing Members given its broader role in 
overseeing OCC's management of third party risks, (which includes OCC 
counterparties such as Clearing Members).
---------------------------------------------------------------------------

    \35\ 17 CFR 240.17Ad-22(e)(3)(iii) and (iv).
    \36\ OCC similarly proposes to amend the AC charter to provide 
that the AC is authorized to approve OCC's audited financial 
statements after review, is authorized to oversee the timing and 
process for implementing a rotation of the engagement partner of the 
external auditor, and is authorized to discuss certain significant 
issues with the external auditor.
---------------------------------------------------------------------------

    OCC proposes to further amend the AC Charter to provide that the AC 
shall review the effectiveness of the internal audit function, 
including conformance with the Institute of Internal Auditor's Code of 
Ethics and the International Standards for Professional Practice of 
Internal Auditing. OCC believes that this is a natural extension of the 
AC's role and responsibility to help ensure the integrity of OCC's 
audits and is consistent with the public interest and the protection of 
investors.\37\
---------------------------------------------------------------------------

    \37\ See 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    In addition, the AC Charter currently provides that the AC is 
authorized to determine appropriate compensation for audit services and 
pre-approve all audit services, subject to annual approval by the 
Board. As proposed, the AC charter would no longer expressly require 
annual Board approval regarding these items. However, under the AC 
Charter the committee would still be required to confirm annually to 
the Board that all of its responsibilities have been carried out and 
provide an annual report to the Board summarizing its activities during 
the previous year, consistent with Rules 17Ad-22(e)(2)(v) and 17Ad-
22(e)(3)(i) and (iii).\38\ OCC also proposes to amend the AC Charter to 
provide that, in addition to the CAE and CCO, the Chief Financial 
Officer (``CFO'') also would be authorized to communicate directly with 
the Chair of the AC with respect to any of the responsibilities of the 
AC between meetings of the AC given the CFO's role as part of OCC's 
executive team and his/her responsibility for OCC finances.\39\
---------------------------------------------------------------------------

    \38\ See 17 CFR 240.17Ad-22(e)(2)(v) (requiring governance 
arrangements with clear and direct lines of responsibility), 
(e)(3)(i) (requiring periodic review and annual Board approval of 
risk management policies, procedures and systems) and (e)(3)(iii) 
(requiring a risk management framework that provides internal audit 
personnel with sufficient authority, but also access to the Board).
    \39\ As described below, OCC also proposes certain other non-
substantive changes to the AC Charter to provide additional clarity. 
For example, OCC proposes to replace reference to ``financial and 
senior management'' to OCC's ``Corporate Finance Department'' in 
describing the AC's responsibility to facilitate open communication 
between external auditors and certain groups within OCC. As an 
additional example, the AC Charter would be amended to provide that 
the AC is authorized to approve the ``issuance of the annual 
financial'' statements after its review of such statements. 
Similarly, OCC proposes to enhance certain descriptions of the AC's 
responsibilities. For example, OCC proposes to revise text 
describing the role of the AC, along with external auditors, as 
responsible for ``planning and carrying out audit work, as 
appropriate'' rather than ``planning and carrying out a proper 
audit.'' OCC's description of the AC's power to delegate to the CAE 
``within the external audit limits'' would be changed for accuracy 
to read ``within the co-sourced audit hour limits.'' This change is 
meant to reflect the fact that OCC co-sources its internal audit 
function through a partnership between OCC's in-house internal audit 
department and a third party internal audit service provider.

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

[[Page 45710]]

CPC Charter
    OCC proposes a number of revisions to its CPC Charter, the key 
aspects of which would include:
     New responsibility to oversee and monitor certain 
activities of OCC's Administrative Committee, including the approval of 
the Administrative Committee's charter and changes thereto, and 
approval of the members of the Administrative Committee;
     Introduction of mandatory quarterly reporting on OCC's 
corporate plan, corporate budget and capital plan; and
     Annual requirement to review succession planning 
activities regarding OCC's Management Committee (``Management 
Committee'').
    OCC proposes to amend the CPC Charter to state that the CPC assists 
the Board in overseeing risks related to OCC's general business, 
regulatory capital, investments, corporate planning, compensation and 
human capital in addition to assisting the Board in executive 
management succession planning and performance assessments. The 
existing CPC Charter already addresses these aspects of the committee's 
responsibilities generally. The proposed revisions are designed to 
emphasize the committee's responsibility to help the Board oversee such 
risks and to clarify that the committee has an oversight role while it 
remains OCC management's responsibility to identify, manage, monitor 
and report the associated risks, as is consistent with the Rule 17Ad-
22(e)(3)(i) requirement that risk management policies, procedures and 
systems be subject to periodic review and annual approval by the Board 
\40\ and the Rule 17Ad-22(e)(2)(v) requirement that governance 
arrangement ``specify clear and direct lines of responsibility.'' \41\
---------------------------------------------------------------------------

    \40\ 17 CFR 240.17Ad-22(e)(3)(i).
    \41\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

    The CPC Charter would continue to provide that the committee 
oversees the corporate plan and corporate budget and makes 
recommendations to the Board regarding their approval. However, the 
proposed changes would clarify that the corporate plan and budget are 
annual arrangements and that the committee oversees their alignment 
with OCC's business strategy. In addition, a new provision would 
require management to provide a quarterly report to the committee that 
contains information on OCC's performance against the corporate plan 
and the budget.\42\
---------------------------------------------------------------------------

    \42\ OCC believes that quarterly reporting by management to the 
CPC, as described in this discussion of the CPC Charter, helps 
specify clear and direct lines of responsibility in OCC's governance 
arrangements by ensuring that management keeps the CPC apprised of 
OCC's ongoing performance on these matters, which in turn will allow 
the CPC to more effectively carry out its oversight functions and 
the responsibilities associated therewith. See 17 CFR 240.17Ad-
22(e)(2)(v) and (e)(3).
---------------------------------------------------------------------------

    The CPC Charter would continue to provide that the committee 
oversees OCC's capital plan and would be revised to clarify that this 
oversight includes the written policies adopted thereunder, which 
include OCC's fee, dividend and refund policies (which are existing 
responsibilities of the CPC). Revisions also would clarify that the 
committee must review the capital plan at least once every twelve 
months and that the committee makes recommendations to the Board 
concerning capital requirements, refund payments, and dividend 
payments. In addition, a provision would be added to require management 
to provide a quarterly performance report to the committee against the 
capital plan.
    OCC proposes to revise the CPC Charter to provide that the 
Committee would oversee and monitor the activities of OCC's 
Administrative Committee, including the approval of the Administrative 
Committee's charter and changes thereto and of the members of the 
Administrative Committee. OCC believes that these allocations of 
responsibility are appropriate given the CPC's current oversight of the 
Administrative Committee, whereby the CPC is responsible for, among 
other things, appointing members of the Administrative Committee and 
overseeing and monitoring the activities of the Administrative 
Committee with respect to retirement and retirement savings plans.
    In addition, OCC proposes changes to clarify the role that the 
committee plays in oversight of succession planning regarding OCC's 
Management Committee. A new provision would also provide that the 
committee must review the results of Management Committee succession 
planning activities at least once every twelve months.
    Regarding the committee's review of Public Director compensation 
and the recommendations that it provides to the Board related thereto, 
a requirement would be added to the CPC Charter for the committee to 
engage in these activities not less than once every two years. OCC 
believes that a two year period is appropriate for such a review 
because the overall trends in industry compensation generally do not 
change dramatically from year to year. The CPC would continue to look 
at overall Public Director compensation each year for informational 
purposes, but it would not be required to perform a full review of each 
of the components of Public Director compensation packages and 
recommend adjustments to the Board on a yearly basis.
    The CPC Charter would also be amended to clarify that that 
committee is not authorized to adopt or amend compensation, retirement 
and welfare benefit plans that require Board approval and to add a new 
requirement that the committee must review OCC's insurance program at 
least once every twelve months.
    Certain specific responsibilities stated in the CPC Charter would 
be removed in favor of a more general statement that the committee is 
required to perform activities consistent with the CPC Charter as it 
deems necessary or appropriate or as are delegated to the committee by 
the Board, furthering the purposes of the Rule 17Ad-22(e)(2)(v) 
requirement that a covered clearing agency's governance arrangements 
specify clear and direct lines of responsibility.\43\ For example, an 
existing provision would be removed that states that the committee 
reviews special financial matters as requested by the Board. Provisions 
would also be removed that specifically address the committee's review 
and approval of policies and programs regarding salary compensation and 
incentive compensation and its review of material changes to executive 
management benefits.
---------------------------------------------------------------------------

    \43\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

GNC Charter

    OCC also proposes changes to its GNC Charter. The key aspects of 
the proposed changes regarding the GNC Charter include:
     New responsibility for review and approval of related 
party transactions; and
     New responsibility for advising on matters pertaining to 
director leadership development and succession planning.
    OCC proposes to amend the GNC Charter to establish new 
responsibilities for the GNC to approve all material changes to written 
policies concerning related party transactions and recommend such 
changes to the Board for approval. The GNC Charter would also be 
amended to provide that the GNC shall review and, if appropriate, 
approve or ratify any related party transactions involving OCC in 
accordance with the written policy governing such transactions. Because 
the GNC is already responsible for the review of conflicts of interests 
of directors and the manner in which such conflicts will be monitored 
and

[[Page 45711]]

resolved, OCC believes that it is appropriate for the GNC to assume the 
additional responsibility of reviewing related party transactions. OCC 
also believes that it would be appropriate for the GNC to advise the 
Board on matters pertaining to director leadership and development to 
promote compliance with the Rule 17Ad-22(e)(2)(iv) \44\ requirement 
that OCC's governance arrangements establish that Board directors have 
appropriate experience and skills to discharge their duties and 
responsibilities.\45\
---------------------------------------------------------------------------

    \44\ 17 CFR 240.17Ad-22(e)(2)(iv).
    \45\ OCC also proposes to reframe the introductory paragraph of 
the GNC charter to explicitly reference relevant provisions of Rule 
17Ad-22(e)(2) and specify that the GNC is responsible for assessing 
the clarity and transparency of OCC's governance arrangements, 
consistent with Rule 17Ad-22(e)(2)(i). See 17 CFR 240.17Ad-
22(e)(2)(i).
---------------------------------------------------------------------------

    OCC also proposes a number of other changes to the GNC charter, 
which include: (i) Reframing the GNC's responsibilities with respect to 
ensuring that directors are appropriately qualified,\46\ (ii) removing 
the ability for a designee of the chair of the GNC to call an 
additional meeting beyond the four times per year that the GNC will 
meet,\47\ (iii) specifying that the GNC shall review the composition of 
the Board for consistency with public interest and regulatory 
requirements at least every three years rather than periodically,\48\ 
(iv) expanding the GNC's yearly review of the Board Charter for 
consistency with the public interest and other regulatory requirements 
to also include a review of the charters of the Board committees,\49\ 
(v) specifying that the GNC shall identify risk issues that should be 
escalated to the Board for its review and consideration, and (vi) 
providing that the GNC shall annually review and advise the Board with 
regard to whether directors are independent as defined by the Board. In 
addition, OCC proposes to revise the GNC charter to no longer provide 
that the GNC is responsible for recommending to the Board candidates 
for nomination for election or re-election by the stockholders and any 
Board vacancies that are to be filled by the Board. The requirement 
that the GNC nominate candidates is provided explicitly in the By-Laws, 
and OCC further believes that this responsibility is adequately 
captured in OCC's revised description of the GNC's role to identify, 
screen, and review individuals qualified to be elected or appointed to 
serve as Member Directors or Public Directors.\50\
---------------------------------------------------------------------------

    \46\ For example, rather than providing that the GNC would work 
toward developing a Board with a broad spectrum of experience and 
expertise, OCC proposes to provide that the GNC shall identify, for 
purposes of making recommendations to the Board, the criteria, 
skills, experience, expertise, attributes and professional 
backgrounds (collectively, the ``Standards'') desirable in directors 
to ensure the Board is able to discharge its duties and 
responsibilities. In this same vein, OCC proposes to delete language 
providing that the GNC is responsible for recommending to the Board 
for approval and overseeing the implementation and effectiveness of 
OCC's policies and procedures for identifying and reviewing Board 
nominee candidates, including the criteria for Board nominees. OCC 
believes that this deletion is appropriate because it is adequately 
covered by the other provisions in the GNC charter regarding 
directors' qualifications, as revised, and contemplates that the 
Standards are approved by the Board. These changes are designed to 
be consistent with Rule 17Ad-22(e)(2)(iv) (regarding the 
establishment of governance arrangements that ensure ``board of 
directors and senior management have appropriate experience and 
skills to discharge their duties and responsibilities''). See 17 CFR 
240.17Ad-22(e)(2)(iv).
    \47\ OCC believes this change would help ensure that the 
committee's time and resources would be utilized appropriately, 
furthering the purpose of Rule 17Ad-22(e)(2)(ii) requiring that a 
covered clearing agency's governance arrangements prioritize the 
``efficiency'' of the covered clearing agency. See 17 CFR 240.17Ad-
22(e)(2)(ii).
    \48\ This is intended to be consistent with 17 CFR 17Ad-
22(e)(2)(iii) (requiring governance arrangements that support the 
``public interest requirements'' in 17 U.S.C. 78q-1).
    \49\ Id.
    \50\ See OCC By-Law Article III, Sections 5 and 6A. OCC proposes 
to specify in the GNC Charter that the GNC's role in this context 
applies specifically to Public Directors and Member Directors to 
promote consistency with the By-Laws.
---------------------------------------------------------------------------

RC Charter
    OCC also proposes a number of changes to its RC Charter. The key 
aspects of the proposed changes regarding the RC Charter include:
     Transition of responsibilities regarding Enterprise Risk 
Management (``ERM'') to the Board;
     Increased responsibilities with respect to OCC's risk 
management related to credit, collateral, liquidity and third party 
risks;
     Transfer of the oversight of Clearing Member 
investigations and enforcement matters to the RC; and
     Introduction of mandatory periodic reporting on the 
effectiveness of OCC's management of risks.
    OCC proposes to amend the RC Charter's statement of the committee's 
responsibilities. First, the RC Charter currently provides that the RC 
assists the Board in overseeing OCC's policies and processes for 
identifying and addressing strategic, operational and financial (e.g., 
credit, market, liquidity and systemic) risks. This would be replaced 
by a narrower and more specific statement that the RC would have 
responsibility for assisting the Board in its oversight of financial, 
collateral, risk model and third party risk management processes.\51\ 
In addition, the oversight of responsibility for Clearing Member 
investigations and enforcement outcomes of disciplinary actions would 
be transferred from the AC to the RC as the RC has the required 
expertise to properly oversee the process given its current 
responsibility for overseeing the framework for Clearing Membership, 
including (i) periodically reviewing and revising, as appropriate, 
OCC's initial and ongoing requirements for Clearing Membership, (ii) 
overseeing the processes established for reviewing and monitoring 
Clearing Membership (including in respect of the continuance of 
potentially problematic members), and (iii) making recommendations to 
the Board, as applicable, for final determinations in respect of the 
foregoing.
---------------------------------------------------------------------------

    \51\ The RC Charter currently provides that the committee is 
responsible for overseeing OCC's overall ERM framework, including 
``reviewing material policies and processes relating to (i) 
membership criteria and financial safeguards, (ii) member and other 
counterparty risk exposure assessments, (iii) liquidity requirements 
and maintenance of financial resources, (iv) risk modeling and 
assessments, (v) default management planning, and (vi) risks related 
to new initiatives.'' As described in greater detail below, the 
revised descriptions in the RC Charter regarding its oversight of 
these areas would continue to involve responsibilities related to 
credit, market, liquidity and systemic risk but would no longer 
include responsibility for overseeing those aspects related to the 
ERM program. The committee would also continue to be responsible for 
identifying risks associated with its responsibilities that should 
be escalated to the Board for its review and consideration.
---------------------------------------------------------------------------

    The committee would also continue to be responsible for functions 
delegated to it under the By-Laws and Rules and as may be delegated to 
it by the Board. A removal of continued responsibility for strategic 
and operational risks would be consistent with additional changes to 
the RC Charter that provide that the RC would no longer have 
responsibilities related to the ERM program and such responsibilities 
would be transitioned to the Board (which is discussed in further 
detail below). OCC believes that these changes are appropriate because 
issues regarding enterprise risk management are central to OCC's 
comprehensive management of risk and would therefore benefit from the 
experience and attention of the full Board.
    Corresponding changes would also be made to clarify that the 
committee has an oversight role regarding its responsibilities and that 
it remains OCC management's responsibility to identify, manage, monitor 
and report risks in these areas.
    A clarifying statement would also be added to the RC Charter to 
state that the RC is required to perform its responsibilities in 
accordance with the provisions of the RC Charter and applicable 
regulatory requirements. A

[[Page 45712]]

new provision would provide that, from time to time, the committee may 
receive reports and guidance relating to financial risk issues from, 
among others, OCC's Financial Risk Advisory Council (``FRAC''). The 
committee would consider and discuss such reports in respect of 
financial risk issues that may impact the options and futures 
industries. The committee would take such guidance into account in the 
exercise of its fiduciary judgment and the performance of its functions 
and responsibilities.
    Regarding meetings of the RC, a change would be made to the RC 
Charter to specify that joint meetings with other Board committees 
count toward the requirement to meet at least six times a year. A 
change would also clarify that in-person attendance of meetings is 
preferred.
    In connection with the RC no longer having responsibilities 
regarding the ERM program, several related provisions would be removed 
from the RC Charter. For example, the committee would no longer have 
responsibility to oversee the structure, staffing and resources of the 
ERM program or approve its goals and objectives on an annual basis. 
Additionally, it would no longer be responsible for reviewing OCC's 
risk appetite statements and risk tolerances because the Board would 
assume responsibility for approval of these matters.
    As noted, the proposed changes to the RC Charter would clarify the 
RC's broad responsibilities for overseeing credit, collateral, 
liquidity and third party risks in a manner consistent with the Rule 
17Ad-22(e)(3)(iii) and (iv) requirements that risk management personnel 
be provided with sufficient authority, resources, independence, and 
access to the board of directors, as well as a direct reporting line to 
and oversight by the RC, and with the Rule 17 Ad-22(e)(2)(v) 
requirement that OCC's governance arrangements specify clear and direct 
lines of responsibility.\52\ The RC Charter currently contains 
provisions that address the responsibility that the committee has for 
these areas, but they would be removed in favor of the more specific 
provisions described below. At least once every twelve months the 
committee would be required to review the adequacy of OCC's management 
of credit, collateral, liquidity, and third party risks. In connection 
with these responsibilities, the RC would receive monthly reports from 
OCC management regarding the effectiveness of OCC's management of 
credit exposures \53\ and liquidity risks.\54\ Management would also 
provide the committee with quarterly reports regarding the 
effectiveness of OCC's management of collateral and third party 
risks.\55\ And, the RC would also be responsible for approval of all 
material changes to written policies regarding risk management in these 
areas and recommending such changes to the Board, consistent with the 
Rule 17Ad-22(e)(3)(i) requirement that a covered clearing agency's risk 
management policies, procedures and systems be subject to periodic 
review and annual approval by the Board.\56\
---------------------------------------------------------------------------

    \52\ 17 CFR 240.17Ad-22(e)(2)(v), (e)(3)(iii) and (iv).
    \53\ For example, the report regarding the effectiveness of the 
management of credit exposures would include the results of: (i) A 
comprehensive analysis of OCC's existing stress testing scenarios, 
models and underlying parameters and assumptions, and (ii) a 
sensitivity analysis of OCC's margin models and a review of the 
associated parameters and assumptions for back testing.
    \54\ The committee would also be required to review the adequacy 
of OCC's secured committed liquidity facilities at least once every 
twelve months and recommend the size and composition of such 
facilities to the Board for approval.
    \55\ OCC believes that this quarterly reporting helps specify 
clear and direct lines of responsibility in OCC's governance 
arrangements by ensuring that management keeps the RC apprised of 
OCC's ongoing performance on these matters, which in turn will allow 
the RC to more effectively carry out its oversight functions and the 
responsibilities associated therewith. See 17 CFR 240.17Ad-
22(e)(2)(v) and (e)(3).
    \56\ 17 CFR 240.17Ad-22(e)(3)(i).
---------------------------------------------------------------------------

    The RC Charter would continue to provide that the committee has 
responsibility regarding OCC's risk models, including margin models, 
but it would be revised to more specifically identify the committee's 
oversight role regarding model validations,\57\ its responsibility for 
approving any material changes to written policies regarding model risk 
management, and for recommending any such change to the Board, 
consistent with the Rule 17Ad-22(e)(3)(i) requirement that a covered 
clearing agency's risk management policies, procedures and systems be 
subject to periodic review and annual approval by the Board.\58\
---------------------------------------------------------------------------

    \57\ This would include the review and approval of OCC's risk 
model validation plan, plan deviations, and related reports and 
recommendations by OCC's Chief Risk Officer (``CRO'').
    \58\ 17 CFR 240.17Ad-22(e)(3)(i).
---------------------------------------------------------------------------

    Responsibilities would also be made explicit in connection with the 
review and approval of any new products that materially impact OCC's 
established risk profile or introduce novel or unique financial, risk 
model and third party risks. The RC would refer any such new products 
that it approves to the Board for its potential approval.
    The RC Charter would also be amended to codify the committee's 
existing responsibility to oversee OCC's Recovery and Orderly Wind-down 
Plan, consistent with the requirement in Rule 17Ad-22(e)(3)(ii).\59\ At 
least once every twelve months, this would include reviewing the 
adequacy of the plan. If the committee approves the plan, it would next 
recommend the plan to the Board for potential Board approval. The 
committee would also have responsibility for reviewing and approving 
any material changes to the plan; however, in the event the committee 
approves any such changes, it would in turn recommend the changes to 
the Board for its potential approval.\60\
---------------------------------------------------------------------------

    \59\ 17 CFR 240.17Ad-22(e)(3)(ii).
    \60\ In relevant part, the RC Charter states the following. 
``The Committee shall review and have the authority to approve at 
least once every twelve months the adequacy of OCC's Recovery and 
Orderly Wind-Down Plan and recommend approval thereof to the Board. 
The Committee shall have the authority to approve all material 
changes to the Recovery and Orderly Wind-Down Plan and recommend 
such changes to the Board.''
---------------------------------------------------------------------------

    The committee would continue to have responsibility regarding the 
structure and staffing of OCC's financial risk management group; 
however, detail would be added to the RC Charter to clarify the same 
responsibility for OCC's corporate risk management functions and that 
the RC must review structure and staffing in these areas at least once 
every twelve months. A provision would also be added to provide that 
the committee would review and approve the CRO's goals and objectives, 
and any material changes thereto, at least once every twelve months. 
OCC believes these changes are consistent with the Rule 17Ad-
22(e)(3)(iv) requirement that the RC provide oversight of risk 
management personnel,\61\ as well as the Rule 17Ad-22(e)(2)(v) 
requirement that a covered clearing agency's governance arrangements 
provide for clear and direct lines of responsibility.\62\
---------------------------------------------------------------------------

    \61\ 17 CFR 240.17Ad-22(e)(3)(iv).
    \62\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

    As noted above, OCC also proposes to amend the RC Charter to 
transfer responsibility for reviewing the investigation and enforcement 
outcomes of disciplinary actions taken by OCC against Clearing Members 
from the AC to the RC. OCC believes that the RC is appropriately 
situated to review disciplinary actions against Clearing Members given 
the committee's broader role in overseeing OCC's management of third 
party risks, which includes OCC counterparties such as Clearing 
Members. Finally, the RC Charter would continue to provide that the RC 
reviews the results of internal and external audits and regulatory 
examinations. However, a statement would be added

[[Page 45713]]

to clarify that the committee is responsible for reviewing third party 
assessment reports as to financial, collateral, risk model and third 
party risk management processes and for reviewing OCC management's 
remediation efforts pertaining to any such examination and reports.
TC Charter
    In addition, OCC proposes a number of changes to its TC Charter. 
Key aspects of the proposed changes regarding the TC Charter include:
     New responsibility for oversight of material changes to 
the operational execution and delivery of core clearing and settlement 
services with the authority to recommend approval thereof to the Board;
     New responsibility for OCC's operational initiatives, 
including approving major information technology (``IT'') and 
operational initiatives, recommending any major capital expenditures to 
implement to the Board, and approving the information technology and 
operational budget for each calendar year;
     New responsibility to review at least every twelve months 
the adequacy of OCC's management of information security risks, approve 
all material changes to written polices related to the managing 
information security risks and recommend such changes to the Board;
     Introduction of mandatory periodic reporting from 
management on major IT initiatives;\63\ and
---------------------------------------------------------------------------

    \63\ OCC proposes that the TC would oversee and receive 
quarterly reports from management that provide information on: (i) 
Executing on major IT initiatives, technology architecture decisions 
(as applicable) and IT priorities as well as overall IT performance; 
(ii) the effectiveness of the management of information security 
risks; (iii) OCC's Business Continuity and Disaster Recovery 
Programs, including the progress on executing the annual test plan 
and achieving recovery time objectives; and (iv) major operational 
initiatives and metrics on the effectiveness of OCC's operations 
with reference to key indicators. OCC believes that such reports 
would provide the TC with the necessary information to discharge its 
oversight duties and responsibilities appropriately and will 
facilitate dialogue between the TC and OCC's senior IT management 
team. OCC believes that this reporting also helps specify clear and 
direct lines of responsibility in OCC's governance arrangements by 
ensuring that management keeps the TC apprised of OCC's ongoing 
performance on these matters, which in turn will allow the TC to 
more effectively carry out its oversight functions and the 
responsibilities associated therewith. See 17 CFR 240.17Ad-
22(e)(2)(v) and (e)(3).
---------------------------------------------------------------------------

     New responsibility to oversee and receive a quarterly 
report from management on OCC's Business Continuity and Disaster 
Recovery Programs.
    OCC proposes to amend the TC Charter to specify clear and direct 
lines of responsibility that provide that the TC's role is one of 
oversight and that it remains the responsibility of OCC management to 
identify, manage, monitor and report on IT and other operational risks 
arising from OCC's business activities, consistent with Rule 17Ad-
22(e)(2)(v).\64\ In addition, OCC proposes to amend the TC Charter so 
that it would no longer require that the TC work with or report to the 
AC and RC to monitor the quality and effectiveness of IT systems and 
processes that relate to or affect OCC's internal control systems and 
risk management systems. As noted above in the discussion of common 
changes to the charters, however, the TC and any other committee or the 
Board would have certain authority to refer risks under their oversight 
to promote the smooth functioning of OCC's governance arrangements. OCC 
also proposes to revise the TC Charter to remove specific references to 
the committee's oversight of OCC's physical security and instead more 
accurately describe the committee's responsibility for overseeing the 
adequacy of OCC's management of information security risks (which 
generally includes oversight of the confidentiality, integrity, and 
availability of OCC data; the security of the information systems used 
to process, transmit, and store OCC information; and the physical, 
personnel, procedural, administrative, and environment security 
disciplines).
---------------------------------------------------------------------------

    \64\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

    The TC Charter would continue to provide that the TC is responsible 
for assisting the Board in overseeing OCC's IT strategy and other 
company-wide operational capabilities. OCC proposes, however, to delete 
certain general statements regarding the TC's duty to make 
recommendations to the Board with respect to IT-related projects and 
investments and critically review the progress of such projects and/or 
technology architecture decisions. OCC proposes to replace these 
general statements with more specific duties of the TC to, for example, 
receive a report on management's progress in executing on major IT 
initiatives, technology architecture decisions (as applicable) and IT 
priority, and review material changes to the operational execution and 
delivery of core clearing and settlement services as well as material 
changes to written policies concerning information security risk and to 
recommend such changes to the Board for approval.\65\
---------------------------------------------------------------------------

    \65\ OCC proposes similar changes to the TC Charter with respect 
to certain responsibilities of the TC. For example, OCC proposes to 
reframe the TC's responsibility to monitor and assess OCC's 
management of IT-related compliance risks as a responsibility to 
monitor and oversee the overall adequacy of OCC's IT and operational 
control environment, including the implementation of key controls in 
response to regulatory requirements.
---------------------------------------------------------------------------

    OCC also proposes to remove the language stating that the TC will 
``periodically review and appraise . . . OCC's crisis management 
plans,'' and, instead, add language that the TC will oversee and 
receive a quarterly report on ``OCC's Business Continuity and Disaster 
Recovery Programs'' as the crisis management plans are incorporated 
within its Business Continuity and Disaster Recovery Programs. As such, 
the proposed revision will better clarify the full oversight 
responsibility of the committee and better align with the internal 
practices at OCC.
    In addition, OCC proposes to amend the TC Charter to provide that 
the TC shall identify risk issues relating to areas that the TC 
oversees that should be escalated to the Board for its review and 
consideration. OCC believes that this change promotes compliance with 
the Rule 17Ad-22(e)(3) requirement to maintain a sound risk management 
framework for comprehensively managing risks that arise in or are borne 
by OCC by charging the TC with the task of identifying emerging risks 
that may arise over time.\66\
---------------------------------------------------------------------------

    \66\ 17 CFR 240.17Ad-22(e)(3).
---------------------------------------------------------------------------

Board Charter
    As discussed above, OCC would amend its Board Charter by 
incorporating its existing CGP and retiring the separate CGP document. 
The title of the consolidated document would be changed to reflect that 
it represents OCC's ``Board of Directors Charter and Corporate 
Governance Principles.'' Both the Board Charter and CGP are publicly 
available on OCC's website today.\67\ OCC believes this step is 
appropriate to eliminate significant overlap between the contents of 
the two existing documents and thereby make the consolidated provisions 
in the Board Charter easier for Clearing Members and other OCC 
stakeholders to access, use and understand, and thereby further the 
purposes of Rule 17Ad-22(e)(2)(i) by improving the clarity and 
transparency of OCC's governance arrangements.\68\ For example, the 
existing CGP and Board Charter each address aspects of the Board such 
as its size and composition. In addition, the Board Charter and CGP 
also cross-reference one another, such as regarding

[[Page 45714]]

qualification standards for directors, term limitations, the number of 
meetings per year and the Board's authority to hire specialists and 
advisors, which reduces clarity because it requires a reader to turn 
between the two documents to understand the Board's operation. In 
incorporating the CGP within the proposed Board Charter, OCC would make 
changes to the contents of the CGP, as appropriate, to conform the 
existing provisions to the structure and organization of the Board 
Charter and related requirements in the By-Laws and Rules.\69\ However, 
the majority of the provisions in the CGP would be incorporated in 
their existing form and these provisions would address in the Board 
Charter, for example, the size of the Board and its composition, 
membership criteria, appointment of the GNC, the selection of Member, 
Public, Exchange and Management Directors, conduct matters, ethics and 
conflicts of interest, compensation, access to senior management, and 
Board and Board committee evaluations.
---------------------------------------------------------------------------

    \67\ OCC's CGP and Board Charter are available at http://www.theocc.com/about/corporate-information/what-is-occ.jsp.
    \68\ 17 CFR 240.17Ad-22(e)(2)(i).
    \69\ For example, the CGP provides in one instance that all 
materials for Board meetings are made available online by the office 
of the secretary. This particular provision in the CGP would not be 
imported and the Board Charter would be amended to provide that OCC 
operates a portal for the general dissemination of meeting and other 
written materials to directors to reflect how OCC actually operates. 
In addition, OCC proposes to make clear that Public Directors do not 
have term limits, consistent with the requirements in Article III, 
Section 6 of the OCC By-Laws.
---------------------------------------------------------------------------

    As a result of these incorporated provisions, OCC proposes to 
remove certain existing provisions in the Board Charter that 
specifically reference or are duplicative of more comprehensive 
descriptions from the CGP or where the imported text from the CGP 
otherwise covers the more truncated discussions of these items in the 
Board Charter. Specifically, OCC's discussions in the Board Charter 
would be supplanted by more detailed explanations drawn from the CGP 
with respect to: (i) Board composition; (ii) qualification standards 
for directors; (iii) election of directors, resignation and 
disqualification; (iv) tenure, term and age limitations; and (v) 
calling of Board meetings, selection of agenda items, and attendance.
    OCC also proposes to amend the Board Charter to set forth certain 
key considerations and responsibilities in the Board Charter consistent 
with Rule 17Ad-22 that include and expand upon those described above in 
connection with the discussion of proposed changes that are common to 
the charters.\70\ These include providing that the Board shall exercise 
its authority to provide for governance arrangements that, among other 
things, ``support [applicable] public interest requirements . . . and 
the objectives of owners and participants,'' \71\ establish that the 
Board and senior management ``have appropriate experience and skills to 
discharge their duties and responsibilities,'' \72\ specify ``clear and 
direct lines of responsibility'' \73\ and consider the interests of 
Clearing Members' customers.\74\ OCC also proposes changes designed to 
provide for ``clear and direct lines of responsibility'' \75\ by noting 
that the Board has explicitly delegated management of specific risks to 
the Board committees and to the extent a specific risk is not retained 
by the Board or otherwise assigned to a Board committee, such risk 
shall be overseen by the RC.\76\
---------------------------------------------------------------------------

    \70\ See supra notes 16-18 and accompanying text.
    \71\ 17 CFR 240.17Ad-22(e)(2)(iii).
    \72\ 17 CFR 240.17Ad-22(e)(2)(iv).
    \73\ 17 CFR 240.17Ad-22(e)(2)(v).
    \74\ OCC would also provide as a guiding principle that the 
Board is, among other things, mindful of the public interest as it 
fulfills its duties by complying with the obligations imposed on it 
under relevant law and that it discloses major decisions to relevant 
stakeholders and the public. 17 CFR 240.17Ad-22(e)(2)(iii).
    \75\ 17 CFR 240.17Ad-22(e)(2)(v).
    \76\ The amended Board Charter would further specify that the 
Board may form and delegate authority to committees and may delegate 
authority to one or more of its members and to one or more 
designated officers of OCC but would note that the Board would 
retain the obligation to oversee any such delegation or referral and 
assure itself that delegation and reliance on the work of any 
delegate is reasonable. Specifying this delegation in the Board 
Charter is consistent with the requirement in Rule 17Ad-22(e)(2)(v) 
that a covered clearing agency's governance arrangements specify 
clear and direct lines of responsibility. See 17 CFR 240.17Ad-
22(e)(2)(v).
---------------------------------------------------------------------------

    Currently, the Board Charter sets forth a number of functions and 
responsibilities of the Board. OCC proposes to reorganize this list of 
functions and responsibilities in a new section regarding the mission 
of the Board and proposes non-substantive changes to some of the 
descriptions of the Board's responsibilities. For example, the Board 
Charter currently provides that the Board is responsible for advising, 
approving, and overseeing OCC's business strategies, including 
expansions of clearing and settlement services to new business lines, 
as well as monitoring OCC's performance in delivering clearance and 
settlement services. OCC proposes to amend the Board Charter to provide 
that the Board is responsible for overseeing OCC's business strategies, 
including expansions of clearance and settlement services to new 
business lines and product types, to ensure they reflect the legitimate 
interests of relevant stakeholders and are consistent with the public 
interest.\77\ These changes are designed to improve the readability of 
the document as well as to specify additional, specific considerations 
of the Board with respect to particular responsibilities.\78\ OCC notes 
that the Board Charter would provide that the Board is responsible for 
the business and affairs of OCC and that the Board would continue to be 
responsible for performing such other functions as the Board believes 
appropriate or necessary or as otherwise prescribed by rules or 
regulations, including OCC's By-Laws and Rules.\79\
---------------------------------------------------------------------------

    \77\ As a further example, OCC proposes to revise the Board's 
responsibility to oversee ``OCC's information technology strategy, 
infrastructure, resources and risks'' to provide that the Board's 
responsibility is to oversee ``OCC's technology infrastructure, 
resources, and capabilities to ensure resiliency with regard to 
OCC's provision of its clearing, settlement, and risk management 
services.'' OCC also proposes to remove oversight of human resources 
programs from the Board Charter because that responsibility has been 
delegated to the CPC.
    \78\ For example, OCC also proposes to specify that the Board's 
authority extends to performing such functions as it believes are 
appropriate or necessary, or as otherwise prescribed by rules or 
regulation, including OCC's By-Laws and Rules, ``or other 
policies.'' This change is intended to clarify that the scope of the 
Board's authority extends to all of OCC's policies.
    \79\ Pursuant to this broad responsibility, OCC believes that 
the functions and responsibilities of the Board would remain 
consistent notwithstanding certain proposed deletions or rephrasing 
regarding the existing list of responsibilities. For example, the 
Board Charter would no longer specify that the Board would review 
committee charters and reports of committee activities; however, it 
would nevertheless provide that the Board is responsible for 
establishing a written charter for each committee and that each 
committee would be responsible for providing an annual report to the 
Board regarding its activities.
---------------------------------------------------------------------------

    In addition to the changes described above, OCC proposes to modify 
the description of the Board's functions and responsibilities as part 
of the description of the mission of the Board to include: (i) 
Overseeing OCC's governance structures and processes to ensure that the 
Board is positioned to fulfill its responsibilities effectively and 
efficiently consistent with applicable requirements and through 
performance assessments, consistent with the requirements of Rule 17Ad-
22(e)(3)(i); \80\ (ii) ensuring that risk management, compliance, and 
internal audit personnel have sufficient authority, resources, 
independence from management, access to the Board, and a direct 
reporting line to, and oversight by, certain committees, consistent 
with the requirements of Rules 17Ad-22(e)(3)(iii) and (iv); \81\ (iii) 
ensuring that the audit committee of the Board is

[[Page 45715]]

independent, consistent with the requirements of Rule 17Ad-22(e)(3)(v); 
\82\ (iv) transitioning the overall oversight of ERM to the Board; and 
(v) assigning responsibility for risk decisions and policies to address 
decision-making during a crisis. The Board Charter would also be 
amended to codify the Board's existing responsibility for overseeing 
and approving OCC's Recovery and Orderly Wind-Down Plan.\83\
---------------------------------------------------------------------------

    \80\ 17 CFR 240.17Ad-22(e)(3)(i).
    \81\ 17 CFR 240.17Ad-22(e)(3)(iii) and (iv).
    \82\ 17 CFR 240.17Ad-22(e)(3)(v).
    \83\ See supra note 60 and accompanying text.
---------------------------------------------------------------------------

    As noted above, OCC proposes to transfer responsibility for the 
oversight of ERM from the RC to the Board. The proposed change would 
allow the Board to retain responsibility for the comprehensive 
oversight of OCC's overall risk management framework, while retaining 
the ability to delegate oversight of specific risks to designated 
committees, which would then report to and be subject to oversight by 
the Board. Moreover, shifting enterprise risk oversight responsibility 
from the RC to the Board would promote even further engagement by and 
attention from the Board regarding OCC's risk universe and how such 
risks impact OCC's strategic direction and priorities as well as 
provide for more meaningful dialogue and discussion at Board meetings. 
Moreover, it would alleviate the potential for overburdening the RC and 
establish clearer lines of oversight responsibilities for particular 
risks across the Board's committees. Additionally, the expertise 
represented on the Board collectively would be available to provide 
appropriate guidance relative to each key risk within OCC's risk 
universe.
    OCC also proposes a number of other changes to the Board Charter, 
such as deletion of the provision noting that the Member Vice Chairman 
of the Board has the responsibilities set forth in the By-Laws. OCC 
believes this is appropriate because the responsibilities of the Member 
Vice Chairman are already set forth in OCC's By-Laws. OCC also proposes 
to amend the Board Charter to no longer specify that the Board is 
responsible for an annual self-evaluation of its performance and the 
performance of its committees and individual directors.\84\ Because the 
Board has delegated responsibility to the GNC for the annual self-
evaluation of the Board and its committees, which is described in text 
that OCC proposes to import from the CGP, OCC believes that it is no 
longer necessary to specify that the Board would have this annual self-
evaluation obligation.\85\ Similarly, OCC proposes to amend the Board 
Charter to no longer provide that the Board is responsible for 
evaluating and fixing the compensation of the Executive Chairman and 
certain other officers because the Board has delegated this 
responsibility to the CPC.\86\ Finally, OCC proposes to delete the 
current footnote one (1) from the Board Charter, which provides an 
example of an instance in which certain provisions of the By-Laws 
provide that the Board should not take action. The amended Board 
Charter would continue to provide that the Board's responsibilities and 
duties are subject to any exceptions provided in OCC's Amended and 
Restated Certificate of Incorporation or the By-Laws and Rules, but OCC 
believes that the footnote providing an example of such an instance is 
unnecessary and its deletion would improve readability of the Board 
Charter.
---------------------------------------------------------------------------

    \84\ The Board Charter would provide more generally that the 
Board is responsible for overseeing OCC's activities through regular 
assessments of Board and individual director performance.
    \85\ OCC also proposes to amend the Board Charter to provide 
that the annual self-evaluations shall no longer include a focus on 
individual directors' performances but will instead focus primarily 
on the performance of the Board and each committee as a whole. OCC 
has found that because not every director has the opportunity to 
work with each other director, focusing the annual self-evaluation 
on individual director performance is less effective than focusing 
on the performance of each committee as a whole.
    \86\ However, the amended Board Charter would specify that the 
Board is responsible for approving the compensation of such 
officers.
---------------------------------------------------------------------------

    OCC also proposes to amend the Board Charter to provide that a 
number of different activities related to the conduct and functioning 
of the Board would involve participation by or input from certain other 
officers of OCC that serve functions relevant to the topic being 
discussed. For example, with respect to setting the agenda for Board 
meetings, the Board Charter currently provides that the Executive 
Chairman, in consultation with other directors or officers of OCC, as 
well as the Corporate Secretary, will establish an agenda for Board 
meetings. OCC proposes to amend this provision to provide that the 
Executive Chairman and CEO, in consultation with the COO and CAO, other 
directors or officers of OCC, and the Corporate Secretary shall 
establish the agenda for Board meetings.\87\ These changes are designed 
to help specify clear and direct lines of responsibility and promote 
clear and transparent governance arrangements in the public interest 
pursuant to Rule 17Ad-22(e)(2) by making clear the roles and authority 
of certain officers and ensuring that input from additional officers is 
included where appropriate.
---------------------------------------------------------------------------

    \87\ Similarly, OCC proposes to amend the Board Charter to 
provide that the CEO, COO and CAO would have the authority to invite 
employees to Board meetings, that such officers encourage members of 
senior management to respond to questions posed by directors 
relating to their areas of expertise, and that directors shall 
coordinate access to members of senior management and outside 
advisors through such officers. The criteria for Board member 
eligibility would also be expanded to ensure that candidates' 
experience and expertise are not only adequate to offer advice and 
guidance to the Executive Chairman, but also to the CEO, COO, and 
CAO.
---------------------------------------------------------------------------

(2) Statutory Basis
    OCC believes the proposed rule change is consistent with Section 
17A of the Act \88\ and the rules thereunder applicable to OCC. Section 
17A(b)(3)(F) of the Act \89\ requires, among other things, that the 
rules of a clearing agency be designed, in general, to protect 
investors and the public interest. When considered together, the 
proposed changes described herein are designed, in general, to clarify 
and assign certain responsibilities for the governance and oversight of 
OCC among the Board and its respective committees in order to provide 
for governance arrangements that are clear and transparent and that 
specify clear and direct lines of responsibility. In turn, these 
changes would help ensure that OCC has governance arrangements that are 
organized to support its ability to promptly and accurately serve 
Clearing Members and the markets for which it clears and effectively 
manage the range of risks that arise in the course of providing such 
clearance and settlement services. OCC therefore believes that the 
proposed rule change would provide for governance arrangements that are 
designed, in general, to protect investors and the public interest in a 
manner consistent with Section 17A(b)(3)(F) of the Act \90\ and that 
are consistent with the rules thereunder, as discussed in further 
detail below.\91\
---------------------------------------------------------------------------

    \88\ 15 U.S.C. 78q-1.
    \89\ 15 U.S.C. 78q-1(b)(3)(F).
    \90\ 15 U.S.C. 78q-1(b)(3)(F).
    \91\ See supra notes 18, 20, 22, 23, 27, 29, 31, 33, 38, 41-48, 
52, 55, 62-64, 71-76 and accompanying text for changes related to 
Rules 17Ad-22(e)(2). 17 CFR 240.17Ad-22(e)(2). See supra notes 21, 
26, 30, 33-35, 38, 40, 42, 52, 55-56, 58-59, 60, 63, 66, 80-83 and 
accompanying text for changes related to Rules 17Ad-22(e)(3). 17 CFR 
240.17Ad-22(e)(3).
---------------------------------------------------------------------------

Common Changes
    As described in Item II.(A)(1) above, OCC believes that all of the 
proposed common changes to the charters are designed to provide for 
governance arrangements that clearly prioritize the safety and 
efficiency of OCC, support the public interest requirements in

[[Page 45716]]

Section 17A of the Act \92\ and the objectives of owners and 
participants, and consider the interests of participants' customers, 
securities issuers and holders, and other relevant stakeholders of OCC. 
First, the proposed rule change would require the Board and the 
committees to prioritize the safety and efficiency of OCC in carrying 
out their responsibilities.\93\ Second, the charters, as revised, would 
require the Board and the committees to carry out their 
responsibilities to generally support the stability of the broader 
financial system, which OCC believes requires them to act in a manner 
that would, in part, also promote the prompt and accurate clearance and 
settlement of securities transactions for the protection of investors 
and persons facilitating transactions by and acting on behalf of 
investors, which is one of the public interest findings in Section 17A 
of the Act.\94\ Third, the revised charters would require the Board and 
the committees to consider the legitimate interests of Clearing 
Members, customers of Clearing Members and other relevant stakeholders, 
taking into account prudent risk management standards (including 
systemic risk mitigation) and industry best practices, which is 
consistent with providing for governance arrangements that consider the 
interests of Clearing Member's customers and other relevant 
stakeholders of OCC.\95\ Moreover, OCC would amend the committee 
charters to provide that in the event of a committee vacancy, the 
applicable committee would continue to undertake its responsibilities 
(including those enumerated above), so long as the remaining committee 
members are capable of satisfying the quorum requirement, to ensure 
that the committee can continue to effectively carry out its 
responsibilities in such a scenario.\96\ OCC believes the proposed 
changes would enhance the clarity of OCC's Board and committee 
governance arrangements and help ensure that OCC has governance 
arrangements that are organized to support its ability to promptly and 
accurately serve Clearing Members and the markets for which it clears 
and effectively manage the range of risks that arise in the course of 
providing such clearance and settlement services and are therefore 
designed, in general, to protect investors and the public interest in a 
manner consistent with Section 17A(b)(3)(F) of the Act.\97\ OCC also 
believes the proposed changes are reasonably designed to establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to provide for governance arrangements that clearly 
prioritize the safety and efficiency of OCC, support the public 
interest requirements in Section 17A of the Act applicable to clearing 
agencies and the objectives of owners and participants, and consider 
the interests of participants' customers, securities issuers and 
holders, and other relevant stakeholders of a covered clearing agency 
consistent with Rules 17Ad-22(e)(2)(ii), (iii) and (vi).\98\
---------------------------------------------------------------------------

    \92\ 15 U.S.C. 78q-1.
    \93\ See supra notes 18, 23, and 47 and accompanying text.
    \94\ See supra notes 18, 48-49, 71, and 74 and accompanying 
text.
    \95\ See supra note 18 and accompanying text.
    \96\ This same change would not be added to the Board Charter. 
It would also not be added to the GNC Charter because it is already 
addressed.
    \97\ 15 U.S.C. 78q-1(b)(3)(F).
    \98\ 17 CFR 240.17Ad-22(e)(2)(ii), (iii), and (vi).
---------------------------------------------------------------------------

    OCC believes the proposed common changes also would help to provide 
governance arrangements that are clear and transparent and that specify 
clear and direct lines of responsibility. For example, all charters 
would be revised to clearly state that a role of the Board or the 
committee, as applicable, is to advise management. In addition, all of 
the charters would be amended to provide that the Board and the 
committees may delegate authority to one or more designated officers of 
OCC but that in any such instance the Board or the committee retains 
responsibility to oversee the activity and assure itself that the 
reliance on the work of any delegate is reasonable.\99\ As a further 
example, OCC also proposes amendments to acknowledge, where relevant, 
that its EC also serves as the CEO and therefore certain 
responsibilities and considerations that currently apply to the EC 
would also apply regarding the CEO. The charters would also be amended 
to specify clear and direct lines of responsibility by providing that, 
in cases where the Board or a committee has authority to approve 
reports or other matters that are provided to it, the Board or the 
committee is not obligated to approve and has clear means of recourse 
if it does not.\100\ In addition, committees would be required to 
submit their charters to the GNC for potential approval in addition to 
submitting them to the Board. OCC believes the proposed changes would 
enhance the clarity of OCC's Board and committee governance 
arrangements and help ensure that OCC has governance arrangements that 
are organized to support its ability to promptly and accurately serve 
Clearing Members and the markets for which it clears and effectively 
manage the range of risks that arise in the course of providing such 
clearance and settlement services and are therefore designed, in 
general, to protect investors and the public interest in a manner 
consistent with Section 17A(b)(3)(F) of the Act.\101\ OCC also believes 
the proposed changes are reasonably designed to establish, implement, 
maintain and enforce written policies and procedures reasonably 
designed to provide for governance arrangements that are clear and 
transparent and that specify clear and direct lines of responsibility 
consistent with the requirements in Rules 17Ad-22(e)(2)(i) \102\ and 
(v).\103\
---------------------------------------------------------------------------

    \99\ See supra notes 20, 43, and 75-76 and accompanying text.
    \100\ See supra notes 22-23 and accompanying text.
    \101\ 15 U.S.C. 78q-1(b)(3)(F).
    \102\ 17 CFR 240.17Ad-22(e)(2)(i).
    \103\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

    OCC also proposes to make a number of changes to the charters to 
clarify that, where certain actions were required to be performed 
``annually'' under the charters, those actions would now be required to 
occur ``each calendar year.'' \104\ OCC believes that adding more 
specificity in its charters regarding the frequency of these activities 
would provide for governance arrangements that are clear and 
transparent by eliminating ambiguity as to when the Board or a 
committee is responsible for taking certain actions. OCC believes the 
proposed changes would enhance the clarity of OCC's Board and committee 
governance arrangements and the effectiveness of the Board and Board 
committees' oversight and are therefore designed, in general, to 
protect investors and the public interest in a manner consistent with 
Section 17A(b)(3)(F) of the Act.\105\ OCC also believes the proposed 
changes are reasonably designed to establish, implement, maintain and 
enforce written policies and procedures reasonably designed to provide 
for governance arrangements that are clear and transparent consistent 
with the requirements in Rule 17Ad-22(e)(2)(i).\106\
---------------------------------------------------------------------------

    \104\ See supra note 27 and accompanying text.
    \105\ 15 U.S.C. 78q-1(b)(3)(F).
    \106\ 17 CFR 240.17Ad-22(e)(2)(i).
---------------------------------------------------------------------------

AC Charter Changes
    As described in Item II.(A)(1) above, OCC believes certain of the 
proposed changes applicable to the AC Charter are generally designed to 
achieve a risk management framework that provides: (i) Risk management 
and internal audit personnel with sufficient authority, resources, 
independence from management, and access to OCC's

[[Page 45717]]

Board; \107\ (ii) risk management and internal audit personnel with a 
direct reporting line to, and oversight by, a risk management committee 
and an independent audit committee of the Board; \108\ and (iii) an 
independent audit committee.\109\ For example, the AC Charter would be 
amended to clarify that the AC shall oversee the independence and 
objectivity along with the budget and resources of OCC's internal audit 
department so that OCC's risk framework provides internal audit 
personnel with sufficient authority, resources, independence from 
management, and access to the Board and a direct reporting line to, and 
oversight by, an independent audit committee of the Board. OCC also 
proposes to amend the AC charter to provide that the AC is authorized 
to review and approve OCC's audited financial statements, oversee the 
timing and process for implementing a rotation of the engagement 
partner of the external auditor, and discuss certain significant issues 
with the external auditor. OCC believes that framing the AC's 
responsibilities in this manner would provide appropriate flexibility 
for the committee to carry out its oversight and advisory 
responsibilities with respect to OCC's internal audit function. OCC 
believes the proposed changes to the AC Charter would provide 
additional clarity regarding OCC's governance arrangements and allow 
the AC to more effectively carry out its oversight functions concerning 
those matters for which it has responsibility and are therefore 
designed, in general, to protect investors and the public interest in a 
manner consistent with Section 17A(b)(3)(F) of the Act.\110\ OCC 
believes the proposed changes are also consistent with the requirements 
of Rules 17Ad-22(e)(3)(iii), (iv) and (v) \111\ that OCC's risk 
management framework provide: (i) Risk management and internal audit 
personnel with sufficient authority, resources, independence from 
management, and access to the board of directors; (ii) risk management 
and internal audit personnel with a direct reporting line to, and 
oversight by, a risk management committee and an independent audit 
committee of the board of directors; and (iii) an independent audit 
committee.
---------------------------------------------------------------------------

    \107\ See supra notes 35, 38, and accompanying text. See also 
supra notes 52 and 81 and accompanying text for similar changes to 
other charters.
    \108\ See supra note 35 and accompanying text. See also supra 
notes 52, 62, and 81 and accompanying text for similar changes to 
other charters.
    \109\ See supra note 82 and accompanying text (describing a 
change to the Board Charter to ensure an independent audit 
committee).
    \110\ 15 U.S.C. 78q-1(b)(3)(F).
    \111\ 17 CFR 240.17Ad-22(e)(3)(iii), (iv), and (v).
---------------------------------------------------------------------------

    OCC also believes that certain of the proposed amendments to the AC 
Charter are designed to provide for governance arrangements that 
specify clear and direct lines of responsibility. For example, OCC 
proposes to amend the AC Charter to establish the AC's responsibility 
for reviewing the impact of litigation and other legal matters that may 
have a material impact on OCC's financial statements and overseeing the 
staffing, resources, and budget of OCC's compliance and audit 
departments.\112\ As an additional example, OCC proposes to amend the 
AC Charter to provide that certain mandatory reports must be sent to 
the AC for review, which OCC believes would help specify clear and 
direct lines of responsibility in OCC's governance arrangements by 
ensuring that the AC remains apprised of OCC's ongoing performance in 
respect of matters covered by the reports. OCC believes these proposed 
changes to the AC Charter would provide additional clarity regarding 
OCC's governance arrangements and allow the AC to more effectively 
carry out its oversight functions concerning those matters for which it 
has responsibility and are therefore designed, in general, to protect 
investors and the public interest in a manner consistent with Section 
17A(b)(3)(F) of the Act.\113\ OCC believes the proposed changes are 
also consistent with Rule 17Ad-22(e)(2)(v),\114\ which requires OCC to 
provide for governance arrangements that specify clear and direct lines 
of responsibility.
---------------------------------------------------------------------------

    \112\ See supra note 29 and accompanying text.
    \113\ 15 U.S.C. 78q-1(b)(3)(F).
    \114\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

CPC Charter Changes
    As described in Item II.(A)(1) above, OCC believes that certain of 
the proposed changes applicable to the CPC Charter are designed to 
provide for governance arrangement that specify clear and direct lines 
of responsibility. For example, OCC proposes to amend the CPC Charter 
to clarify that the CPC assists the Board in overseeing risks related 
to OCC's general business, regulatory capital, investments, corporate 
planning, compensation, and human capital in addition to assisting the 
Board in executive management succession planning and performance 
assessments. While the CPC Charter already addresses these aspects of 
the committee's responsibilities generally, the proposed revisions are 
designed to emphasize the committee's responsibility to help the Board 
oversee such risks and to clarify that the committee has an oversight 
role while it remains OCC management's responsibility to identify, 
manage, monitor and report the associated risks.
    OCC also proposes to remove certain specific responsibilities 
stated in the CPC Charter in favor of a more general statement that the 
committee is required to perform activities consistent with the CPC 
Charter as it deems necessary or appropriate or as are delegated to the 
committee by the Board, which OCC believes further specifies clear and 
direct lines of responsibility. Changes would be made to clarify the 
role that the committee plays in oversight of succession planning 
regarding OCC's Management Committee, and a new provision would also 
provide that the committee must review the results of Management 
Committee succession planning activities at least once every twelve 
months. Changes would also be made to clarify the CPC's role with 
respect to the oversight of OCC's Administrative Committee, including 
the CPC's authority to approve the Administrative Committee charter. 
OCC believes that these allocations of responsibility are appropriate 
given the CPC's current oversight of the Administrative Committee, 
whereby the CPC is responsible for, among other things, appointing 
members of the Administrative Committee overseeing and monitoring the 
activities of the Administrative Committee with respect to retirement 
and retirement savings plans.
    OCC believes these proposed changes to the CPC Charter would 
provide clarity regarding the responsibilities of the CPC and allow the 
CPC to more effectively carry out its oversight functions concerning 
those risks for which it has responsibility and are therefore designed, 
in general, to protect investors and the public interest in a manner 
consistent with Section 17A(b)(3)(F) of the Act.\115\ Moreover, OCC 
believes the proposed changes to the CPC Charter are consistent with, 
among other provisions, the Rule 17Ad-22(e)(3)(i) requirement that risk 
management policies, procedures, and systems be subject to periodic 
review and annual approval by the Board \116\ and the Rule 17Ad-
22(e)(2)(v) requirement that governance arrangement specify clear and 
direct lines of responsibility.\117\
---------------------------------------------------------------------------

    \115\ 15 U.S.C. 78q-1(b)(3)(F).
    \116\ 17 CFR 240.17Ad-22(e)(3)(i).
    \117\ 17 CFR 240.17Ad-22(e)(2)(v).

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

[[Page 45718]]

GNC Charter Changes
    As described in Item II.(A)(1) above, OCC believes that certain of 
the proposed changes applicable to the GNC Charter are designed to 
ensure that Board directors have appropriate experience and skills to 
discharge their duties and responsibilities and to ensure that OCC's 
governance arrangements specify clear and direct lines of 
responsibility. For example, OCC proposes to amend the GNC Charter to 
reframe the GNC's responsibilities with respect to ensuring that 
directors are appropriately qualified,\118\ and to specify that the GNC 
shall review the composition of the Board for consistency with public 
interest and regulatory requirements at least every three years rather 
than periodically. OCC also proposes to expand the GNC's yearly review 
of the Board Charter for consistency with the public interest and other 
regulatory requirements to also include a review of the charters of the 
Board committees, to specify that the GNC shall identify risk issues 
that should be escalated to the Board for its review and consideration, 
and to provide that the GNC shall annually review and advise the Board 
with regard to whether directors are independent as defined by the 
Board. Under the proposed rule change, the GNC Charter would also be 
amended to assign new responsibility for advising on matters pertaining 
to director leadership development and succession planning. OCC 
believes that these proposed changes to the GNC Charter would enhance 
OCC's governance arrangements by helping to ensure that OCC's directors 
are appropriately qualified and would help promote clear and direct 
lines of responsibility and are therefore designed, in general, to 
protect investors and the public interest in accordance with Section 
17A(b)(3)(F) of the Act.\119\ OCC also believes the proposed changes 
are consistent with the requirement of Rule 17Ad-22(e)(2)(iv) \120\ 
that a covered clearing agency's governance arrangements establish that 
Board directors have appropriate experience and skills to discharge 
their duties and responsibilities and the Rule 17Ad-22(e)(2)(v) 
requirement that a covered clearing agency's governance arrangements 
specify clear and direct lines of responsibility.\121\
---------------------------------------------------------------------------

    \118\ See supra note 46 and accompanying text.
    \119\ 15 U.S.C. 78q-1(b)(3)(F).
    \120\ 17 CFR 240.17Ad-22(e)(2)(iv).
    \121\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

RC Charter Changes
    As described in Item II.(A)(1) above, OCC believes that certain of 
the proposed changes applicable to the RC Charter are designed to 
provide for a sound risk management framework for managing legal, 
credit, liquidity, operational, general business, investment, custody 
and other risks that arise in or are borne by OCC, including risk 
management policies, procedures, and systems that are designed to 
identify, measure, monitor, and manage such risks and that are subject 
to review on a periodic basis and approved annually by the Board.\122\ 
The RC Charter currently contains provisions that address certain 
narrow responsibilities that the committee has for the oversight of 
credit, collateral, liquidity and third party risks. These provisions 
would be removed in favor of new provisions that more accurately 
reflect the RC's broader responsibility to oversee these particular 
risks. For example, changes to the RC Charter, including those related 
to the committee's general function and responsibilities, would be made 
to better align the RC's responsibilities with OCC's regulatory 
requirements and would provide that, among other things, the RC would 
be required to review OCC's management of credit, collateral, 
liquidity, and third party risks at least once every twelve months and 
that management would be required to provide the RC with monthly 
reports regarding the effectiveness of OCC's management of credit 
exposures and liquidity risks and quarterly reports regarding the 
effectiveness of OCC's management of collateral and third party 
risks.\123\ OCC believes the proposed changes to the RC Charter would 
provide additional clarity regarding OCC's governance arrangements and 
improve the effectiveness of the RC's oversight, particularly with 
respect to OCC's credit, collateral, liquidity and third party risks, 
and are therefore designed, in general, to protect investors and the 
public interest in accordance with Section 17A(b)(3)(F) of the 
Act.\124\ OCC also believes that the proposed changes to the RC Charter 
are generally consistent with, among other provisions, the requirements 
of Rule 17Ad-22(e)(3)(i) \125\ to establish, implement, maintain and 
enforce written policies and procedures reasonably designed to maintain 
a sound risk management framework for managing legal, credit, 
liquidity, operational, general business, investment, custody and other 
risks that arise in or are borne by OCC, including risk management 
policies, procedures, and systems that are designed to identify, 
measure, monitor, and manage such risks and that are subject to review 
on a periodic basis and approved annually by the Board.
---------------------------------------------------------------------------

    \122\ See supra notes 54-55, and 58, and accompanying text. See 
also supra notes 21, 33, 38, 40, 42, 63, and 80 and accompanying 
text for similar changes with respect to other committee charters.
    \123\ See supra note 55 and accompanying text.
    \124\ 15 U.S.C. 78q-1(b)(3)(F).
    \125\ 17 CFR 240.17Ad-22(e)(3)(i).
---------------------------------------------------------------------------

    OCC also proposes changes to the RC Charter to specify the RC's 
responsibilities concerning plans for OCC's recovery and orderly wind-
down (``Recovery and Orderly Wind-down Plan'').\126\ OCC believes the 
proposed changes would provide additional clarity regarding OCC's 
governance arrangements concerning matters of critical importance and 
are therefore designed, in general, to protect investors and the public 
interest in accordance with Section 17A(b)(3)(F) of the Act.\127\ OCC 
also believes these proposed changes to the RC Charter are consistent 
with the requirements in Rule 17Ad-22(e)(3)(ii) that OCC maintain a 
sound risk management framework that includes plans for the recovery 
and orderly wind-down of the covered clearing agency necessitated by 
credit losses, liquidity shortfalls, losses from general business risk, 
or any other losses.\128\
---------------------------------------------------------------------------

    \126\ See supra note 59 and accompanying text.
    \127\ 15 U.S.C. 78q-1(b)(3)(F).
    \128\ 17 CFR 240.17Ad-22(e)(3)(ii).
---------------------------------------------------------------------------

    Finally, OCC proposes to reassign the oversight of the 
investigations and enforcement outcomes of disciplinary actions taken 
by OCC against Clearing Members to the RC because OCC believes that the 
RC is more appropriately situated to review investigations and 
enforcement outcomes of disciplinary actions given its oversight of 
OCC's Clearing Membership framework. OCC believes the proposed changes 
to the RC Charter would establish clear and direct responsibility for 
the oversight of investigations and enforcement outcomes of 
disciplinary actions taken by OCC by an appropriate committee of OCC's 
Board and are therefore designed, in general, to protect investors and 
the public interest in accordance with Section 17A(b)(3)(F) of the Act 
\129\ and are consistent with the Rule 17Ad-22(e)(2)(v) requirement 
that a covered clearing agency's governance

[[Page 45719]]

arrangements specify clear and direct lines of responsibility.\130\
---------------------------------------------------------------------------

    \129\ 15 U.S.C. 78q-1(b)(3)(F).
    \130\ 17 CFR 240.17Ad-22(e)(2)(v).
---------------------------------------------------------------------------

TC Charter Changes
    As described in Item II.(A)(1) above, OCC believes that certain of 
the proposed changes applicable to the TC Charter are designed to 
provide for governance arrangements that specify clear and direct lines 
of responsibility and to ensure that OCC maintains a sound risk 
management framework for comprehensively managing risks that arise in 
or are borne by OCC. For example, OCC proposes to amend the TC Charter 
to provide that the TC shall identify risk issues relating to areas 
that the TC oversees that should be escalated to the Board for its 
review and consideration. As a further example, OCC also proposes to 
amend the TC Charter to provide that the TC's role is one of oversight 
and that it remains the responsibility of OCC management to identify, 
manage, monitor and report on IT and other operational risks arising 
from OCC's business activities while the Committee will oversee the 
progress in executing on major IT initiatives, technology architecture 
decisions and IT priorities. Other language was also revised to more 
clearly describe the TC's responsibilities related to the oversight of 
internal controls, and review of the crisis management plans as these 
topics often fall within other areas (such as Business Continuity and 
Disaster Recovery). OCC believes these revisions will strengthen the 
transparency and clarity of its governance structure. Finally, OCC 
would revise the TC Charter to remove specific references to the 
committee's oversight of OCC's physical security and to more accurately 
describe the committee's responsibility for overseeing the adequacy of 
OCC's management of information security risks (which generally 
includes oversight of the confidentiality, integrity, and availability 
of OCC data; the security of the information systems used to process, 
transmit, and store OCC information; and the physical, personnel, 
procedural, administrative, and environment security disciplines). OCC 
believes that these changes will promote a sound risk management 
framework and add greater clarity to the responsibilities of the TC.
    For the reasons set forth above, OCC believes that the proposed 
changes to the TC Charter would provide additional clarity to OCC's 
governance arrangements and improve the effectiveness of the TC's 
oversight of OCC's IT and other operational risks and are therefore 
designed, in general, to protect investors and the public interest in 
accordance with Section 17A(b)(3)(F) of the Act.\131\ Moreover, OCC 
believes the proposed changes are reasonably designed to meet the 
requirements of Rule 17Ad-22(e)(2)(v) \132\ to provide for governance 
arrangements that specify clear and direct lines of responsibility and 
Rule 17Ad-22(e)(3) \133\ to maintain a sound risk management framework 
for comprehensively managing risks that arise in or are borne by OCC.
---------------------------------------------------------------------------

    \131\ 15 U.S.C. 78q-1(b)(3)(F).
    \132\ 17 CFR 240.17Ad-22(e)(2)(v).
    \133\ 17 CFR 240.17Ad-22(e)(3).
---------------------------------------------------------------------------

Board Charter Changes
    As described in Item II.(A)(1) above, OCC believes that certain of 
the proposed changes applicable to the Board Charter are designed to 
improve the clarity and transparency of OCC's governance arrangements 
and provide for governance structures and processes that are designed 
to ensure that the Board is positioned to fulfill its responsibilities 
effectively and efficiently consistent with applicable requirements and 
through performance assessments. For example, as noted above, 
incorporating the CGP within the Board Charter would promote clarity 
and transparency by eliminating significant overlap between the two 
existing documents and thereby making the consolidated provisions in 
the Board Charter easier for Clearing Members and other OCC 
stakeholders to access, use and understand.\134\ As a further example, 
OCC proposes to amend the Board Charter to provide that the Executive 
Chairman and CEO, in consultation with the COO and CAO, other directors 
or officers of OCC, and the Corporate Secretary shall establish the 
agenda for Board meetings, which is designed to help specify clear and 
direct lines of responsibility and promote clear and transparent 
governance arrangements by making clear the roles and authority of 
certain officers and ensuring that input from additional officers is 
included where appropriate. As a further example, OCC believes the 
proposed changes to the Board Charter would make clear that the Board 
is responsible for ensuring that the AC of the Board is 
independent.\135\ OCC believes that the proposed changes to the Board 
Charter would enhance the clarity of OCC's governance arrangements and 
improve the effectiveness of the Board's oversight and are therefore 
designed, in general, to protect investors and the public interest in a 
manner consistent with Section 17A(b)(3)(F) of the Act.\136\ Moreover, 
OCC believes the proposed changes are generally consistent with, among 
other things, the Rule 17Ad-22(e)(2)(i) \137\ requirement to provide 
for governance arrangements that are clear and transparent, the Rule 
17Ad-22(e)(3) \138\ requirement to maintain a sound risk management 
framework for comprehensively managing legal, credit, liquidity, 
operational, general business, investment, custody, and other risks 
that arise in or are borne by the covered clearing agency, and the Rule 
17Ad-22(e)(3)(iii) \139\ requirement to provide internal audit 
personnel with sufficient authority, resources, independence from 
management, and access to the board of directors.
---------------------------------------------------------------------------

    \134\ See supra note 68 and accompanying text.
    \135\ See supra note 82 and accompanying text.
    \136\ 15 U.S.C. 78q-1(b)(3)(F).
    \137\ 17 CFR 240.17Ad-22(e)(2)(i).
    \138\ 17 CFR 240.17Ad-22(e)(3).
    \139\ 17 CFR 240.17Ad-22(e)(3)(iii).
---------------------------------------------------------------------------

    In addition, OCC proposes to transfer responsibility for the 
oversight of the ERM function from the RC to the Board. The proposed 
change would allow the Board to retain responsibility for the 
comprehensive oversight of OCC's overall risk management framework, 
while retaining the ability to delegate oversight of specific risks to 
designated committees, which would then report to and be subject to 
oversight by the Board. Moreover, shifting enterprise risk oversight 
responsibility from the RC to the Board would promote even greater 
director engagement and attention regarding OCC's risk universe (i.e., 
the range of risks to which OCC is exposed) and how such risks impact 
OCC's strategic direction and priorities as well as provide for more 
meaningful dialogue and discussion at Board meetings. Moreover, it 
would alleviate the potential for overburdening the RC and establish 
clearer lines of oversight responsibilities for particular risks across 
the Board's committees. Additionally, the expertise represented on the 
Board collectively would be available to provide appropriate guidance 
relative to each key risk within OCC's risk universe. OCC believes that 
the proposed changes to the Board Charter would enhance the 
effectiveness of the Board's oversight, particularly with respect to 
OCC's ERM functions, and are therefore designed, in general, to protect 
investors and the public interest in a manner consistent with Section 
17A(b)(3)(F) of the Act.\140\ In addition, OCC believes the proposed 
change is reasonably designed to provide for a sound risk management 
framework for comprehensively

[[Page 45720]]

managing legal, credit, liquidity, operational, general business, 
investment, custody, and other risks that arise in or are borne by OCC 
consistent with Rule 17Ad-22(e)(3).\141\
---------------------------------------------------------------------------

    \140\ 15 U.S.C. 78q-1(b)(3)(F).
    \141\ 17 CFR 240.17Ad-22(e)(3).
---------------------------------------------------------------------------

    Finally, OCC notes that the proposed rule change is not 
inconsistent with the existing rules of OCC, including any other rules 
proposed to be amended.

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

    Section 17A(b)(3)(I) of the Act \142\ requires that the rules of a 
clearing agency not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act. OCC does not 
believe that the proposed rule change would impact or impose any burden 
on competition. The proposed rule change addresses the charters used in 
OCC's governance structure, and all Clearing Members would be equally 
subject to these governance arrangements. Consequently, the amended 
charters would not provide any Clearing Member with a competitive 
advantage over any other Clearing Member. Further, the proposed rule 
change would not affect Clearing Member's access to OCC's services or 
impose any direct burdens on Clearing Members. Accordingly, the 
proposed rule change would not unfairly inhibit access to OCC's 
services or disadvantage or favor any particular user in relationship 
to another user.
---------------------------------------------------------------------------

    \142\ 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 
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-2018-012 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-OCC-2018-012. 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 Number SR-OCC-2018-012 and 
should be submitted on or before October 1, 2018.
---------------------------------------------------------------------------

    \143\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\143\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-19501 Filed 9-7-18; 8:45 am]
 BILLING CODE 8011-01-P