[Federal Register Volume 83, Number 249 (Monday, December 31, 2018)]
[Notices]
[Pages 67762-67768]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-28385]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84939; File No. SR-OCC-2018-015]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change Concerning Changes to The 
Options Clearing Corporation's Management Structure

December 21, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on December 20, 2018, The Options Clearing 
Corporation (``OCC'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by OCC. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change by OCC would: (1) Reestablish the 
separation of the roles of Executive Chairman and Chief Executive 
Officer (``CEO'') and reallocate authority and responsibilities between 
the two roles; (2) remove the requirement from OCC's By-Laws that the 
Board of Directors (``Board'') elect a Chief Administrative Officer 
(``CAO'') and delete the references to a CAO throughout OCC's By-Laws, 
Rules, and charters; and (3) provide additional flexibility regarding 
the Management Director seat on the Board, including providing that 
such a director is not required. As described below, the proposed rule 
change amends multiple provisions of OCC's By-Laws and Rules to 
effectuate the separation of the Executive Chairman and CEO roles and 
the elimination of the CAO as a required officer. The proposed rule 
change also amends OCC's By-Laws to provide additional flexibility for 
the Management Director seat on the Board

[[Page 67763]]

and makes conforming changes to several OCC charters to implement the 
above amendments.
    The proposed changes to OCC's By-Laws, Rules, and other governing 
documents (``OCC Requirements'') are attached as Exhibit 5A-5G. 
Material proposed to be added to the OCC Requirements as currently in 
effect is marked by underlining. Material proposed to be deleted from 
the OCC Requirements as currently in effect is marked by strikethrough. 
The proposed rule change, including Exhibits 5A-5G, is available on 
OCC's website at https://www.theocc.com/about/publications/bylaws.jsp. 
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.\3\
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    \3\ OCC's By-Laws and Rules can be found on OCC's public 
website: http://optionsclearing.com/about/publications/bylaws.jsp. 
OCC's Board and Board Committee Charters are also available on OCC's 
public website: https://www.theocc.com/about/.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, OCC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. OCC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of these 
statements.

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

(1) Purpose
    OCC is proposing amendments to its By-Laws, Rules, and certain 
committee charters to effectuate several changes to its governance 
structure. First, OCC is seeking to reestablish the separation of the 
Executive Chairman and CEO roles at OCC and allocate authority and 
responsibilities for each of the roles.\4\ In connection with this 
separation, the proposed rule change also would provide that having a 
Management Director on the Board, which is currently filled by the 
Executive Chairman/CEO, is not required. In addition, the proposed rule 
change would remove the requirement from OCC's By-Laws that the Board 
elect a CAO and, consequently, delete the references to a CAO 
throughout OCC's By-Laws, Rules, and charters. The purpose of the 
proposed rule change is to re-establish the separation of the Executive 
Chairman and CEO roles and to implement additional organizational 
changes to OCC's governance structure, including providing additional 
flexibility to the Management Director on the Board and removing the 
requirement that the Board elect a CAO, that the Board has concluded 
would benefit OCC's operation and, consequently, OCC's ability to serve 
Clearing Members and the markets for which it clears and settles 
transactions for the reasons set forth below. Because the proposed rule 
change would eliminate references to the CAO throughout OCC's By-Laws 
and Rules, the proposed rule change would permit delegation of 
authority by the CEO or Chief Operating Officer (``COO'') in those 
instances where there are only two named officers. In those instances, 
OCC believes that delegation is appropriate to ensure that authority 
can be exercised if the CEO and COO are unavailable. Finally, the 
proposed rule change would make conforming changes throughout OCC's By-
Laws, Rules, and certain Board charters to ensure consistency 
throughout those documents.
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    \4\ Prior to the creation of an officer with the title of 
``Chief Executive Officer,'' that function was performed by the 
President of OCC. See Securities Exchange Act Release No. 70076 
(July 30, 2013), 78 FR 47449 (August 5, 2013) (SR-OCC-2013-09) 
(stating that the President will also ``serve as [CEO]'').
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Background
    OCC's Board, as an integral part of its oversight function, may be 
called upon to evaluate OCC's governance structure to assess potential 
ways in which that structure could be improved or enhanced. 
Consequently, OCC has made changes to its governance structure to 
promote the efficient and effective management of its business designed 
to support OCC's management.\5\ More specifically, and most recently, 
on April 26, 2017, the SEC approved a proposed rule change that made 
multiple changes to OCC's management structure (``2017 
Amendments'').\6\ The 2017 Amendments amended OCC's By-Laws, Rules, 
Board of Directors Charter (``Board Charter''), Compensation and 
Performance Committee Charter (``CPC Charter''), Dividend Policy, and 
Refund Policy to address the organizational changes. At that time, the 
Board concluded that the changes represented enhancements to OCC's 
existing leadership structure that would promote OCC's more efficient 
management and operation. The changes were intended to be a temporary 
measure to enable OCC to strengthen and build out its senior management 
team under the direction of the Executive Chairman and CEO. 
Consequently, OCC proposed, and the SEC approved, a number of changes 
to OCC's management structure, including: (1) Providing that the 
Executive Chairman would also serve as a newly-recognized CEO; (2) 
removing the President as a recognized officer of OCC; (3) providing 
that the Board would appoint the COO and a newly recognized CAO; (4) 
giving the COO and CAO authority to take certain actions or grant 
exceptions in instances where that authority had previously been 
granted to the President; (5) making conforming changes to OCC's Board 
Charter, CPC Charter, and the Dividend and Refund Policies reflecting 
the changes; and (6) separating the positions of Treasurer and Chief 
Financial Officer (``CFO'').\7\
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    \5\ See, e.g., Securities Exchange Act Release No. 80531 (April 
26, 2017), 82 FR 20502 (May 2, 2017) (SR-OCC-2017-002) (Order 
Approving Proposed Rule Change Concerning Changes to The Options 
Clearing Corporation's Management Structure); Securities Exchange 
Act Release No. 73785 (December 8, 2014), 79 FR 73915 (December 12, 
2014) (SR-OCC-2014-18) (Notice of Filing and Order Granting 
Accelerated Approval of a Proposed Rule Change to Provide that The 
Options Clearing Corporation's President Will be its Chief Operating 
Officer, and that the President Will Not be a Management Director); 
Securities Exchange Act Release No. 70076 (July 20, 2013), 78 FR 
47449 (August 5, 2013) (SR-OCC-2013-09) (Order Approving Proposed 
Rule Change to Separate the Powers and Duties Currently Combined in 
the Officer of OCC's Chairman in Two Offices, Chairman and 
President, and Create an Additional Directorship to be Occupied By 
the President).
    \6\ See Securities Exchange Act Release No. 80531 (April 26, 
2017), 82 FR 20502 (May 2, 2017) (SR-OCC-2017-002) (Order Approving 
Proposed Rule Change Concerning Changes to The Options Clearing 
Corporation's Management Structure).
    \7\ See Securities Exchange Act Release No. 80531 (April 26, 
2017), 82 FR 20502 (May 2, 2017) (SR-OCC-2017-002). The 2017 
Amendments also made a number of administrative and clean-up edits 
to OCC's By-Laws and Rules. Id.
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    Following the SEC's approval of the 2017 Amendments, the current 
management structure of OCC as set forth in its By-Laws requires 
election by the Board of: (1) An Executive Chairman, who in this role 
also serves as CEO \8\ and as a Management Director; \9\ (2) a COO,\10\ 
and (3) a CAO.\11\ Under the By-Laws, the Executive Chairman is 
responsible for the control functions of OCC, including enterprise risk 
management, internal audit and compliance, and external affairs, and

[[Page 67764]]

has supervision over the officers and agents he appoints.\12\ In his 
role as CEO, the Executive Chairman is also ``an officer responsible 
for all aspects of [OCC's] business and the administration of its day 
to day affairs.'' \13\ These three positions (Executive Chairman/CEO, 
COO, and CAO) also are specifically identified in numerous provisions 
of OCC's By-Laws and Rules that authorize these specific officers (and, 
in some instances, their delegates) to exercise decision-making 
involving various issues; however, because the roles of Executive 
Chairman and CEO are currently combined into a single individual, these 
provisions generally refer to that individual only in his capacity as 
Executive Chairman and do not use the term ``Chief Executive Officer.'' 
\14\ The Board now believes that the OCC management team has been 
substantially enhanced with the installation of key new senior 
members,\15\ and thus the OCC is well positioned to return to its 
previous leadership structure.
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    \8\ See OCC By-Laws, Art. IV, Sec. 6(a) (``The Executive 
Chairman shall also serve as the Corporation's Chief Executive 
Officer, who shall be an officer responsible for all aspects of the 
Corporation's business and the of its day to day affairs.'').
    \9\ See OCC By-Laws, Art. III, Sec. 7 (``The Executive Chairman 
of the Corporation, by virtue of holding his office, shall be 
elected as a Management Director by the stockholders at each annual 
meeting of the stockholders.'').
    \10\ See OCC By-Laws, Art. IV, Sec. 1.
    \11\ See OCC By-Laws, Art. IV, Sec. 1.
    \12\ See OCC By-Laws, Art. IV, Sec. 6(a).
    \13\ OCC By-Laws, Art. IV, Sec. 6(a).
    \14\ See, e.g., OCC Rule 305, OCC Rule 309, OCC Rule 609A, OCC 
Rule 1001, OCC Rule 1002.
    \15\ For example, starting in 2016, and throughout 2017, OCC's 
senior leadership has been staffed with highly qualified and 
experienced executives capable of stabilizing and strengthening 
OCC's operations and compliance posture. These include, among 
others, the hiring of a new President and Chief Operating Officer 
(April, 2017), a Chief Administrative Officer (September, 2016), a 
Chief Security Officer (May, 2017), a Chief Information Officer 
(May, 2017), a Chief Financial Officer (December, 2016), a Chief 
Compliance Officer (December, 2016), and a new head of government 
relations (September, 2016).
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Proposed Changes to OCC's Governance Structure
    As part of its oversight of OCC's governance structure, the Board 
determined that certain aspects of the changes made as part of the 2017 
Amendments should be modified to further enhance OCC's governance 
structure and re-separate the roles of the Executive Chairman and CEO. 
Specifically, OCC is proposing to separate the roles of the Executive 
Chairman and the CEO, and thus create a separate CEO role, and 
reallocate responsibilities and authority between the two roles. With 
the addition of the CEO as a separate officer, OCC is proposing to 
remove the requirement that the Board elect a CAO and to delete the 
references to a CAO throughout the OCC Requirements. The proposed rule 
change would not amend the Board's overall authority to appoint 
officers; rather, it would create an obligation for the Board to elect 
a CEO who is separate from the Executive Chairman and would eliminate 
the requirement for the Board to elect a CAO.\16\ In addition, OCC is 
proposing changes to the Management Director provisions of the By-Laws 
to reflect the separation of the Executive Chairman and CEO roles and 
to provide additional flexibility in the provisions concerning the 
Management Director.\17\ Finally, the proposed rule change would amend 
the Board and certain committee charters to conform to the amendments 
to the By-Laws and Rules.
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    \16\ The By-Laws currently provide that: (i) ``[t]he Board of 
Directors shall also elect a Chief Operating Officer, who it may, in 
its discretion, designate as President of the Corporation, a Chief 
Administrative Officer, a Secretary and a Treasurer, none of whom 
need be a member of the Board of Directors at the time of such 
election'' and (ii) ``[t]he Board of Directors may, but need not, 
elect one or more Vice Presidents or such other officers as it may 
from time to time determine are required for the efficient 
management and operation of the Corporation.'' See OCC By-Laws, Art. 
IV, Sec. 1
    \17\ The proposed rule change would also make non-substantive 
changes to the use of the term ``Executive Chairman.'' The proposed 
rule change would define the term ``Executive Chairman'' and amend 
its use in certain provisions to ensure the term is used 
consistently throughout the By-Laws and Rules (for example, by 
replacing ``Executive Chairman of the Corporation'' with ``Executive 
Chairman'').
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(1) Separation of the Executive Chairman and CEO Roles
    The 2017 Amendments amended Article IV, Section 6 of OCC's By-Laws 
to provide that the Executive Chairman would also serve as a newly 
recognized CEO. In that capacity, the Executive Chairman/CEO is 
responsible for all aspects of OCC's business and the day to day 
administration of its affairs that are not otherwise assigned to the 
COO or CAO.\18\ This approach was adopted as part of the 2017 
Amendments in part to enable OCC to strengthen and build out its senior 
management team under the direction of the Executive Chairman and CEO 
and to provide flexibility and avoid concentrating responsibility in 
any single officer; thus, the COO and CAO assumed certain 
responsibilities that were previously assigned to the President.
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    \18\ Before the 2017 Amendments, the President was responsible 
for all aspects of OCC's business that did not report directly to 
the Executive Chairman and was responsible for the day to day 
administration of OCC's affairs in accordance with the directions of 
the Executive Chairman.
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    OCC believes that at this time it would benefit from a separation 
of the functions of the Executive Chairman and CEO roles. Since the 
implementation of the 2017 Amendments, OCC has taken significant steps 
to enhance its senior management team so that it has a broad range of 
knowledge, skills, and experience and an alignment of officers' 
responsibilities with their skills and experience.\19\ As a result, OCC 
believes it would now benefit further from re-separating the Executive 
Chairman and CEO roles. Under the proposed rule change, the Executive 
Chairman would retain responsibility for facilitating Board leadership 
and management oversight as well as overseeing the work of internal 
audit, public affairs, and government relations, while the CEO would 
oversee all of OCC's business, operational and corporate support 
functions, with key operational and corporate support functions 
reporting indirectly to the CEO through the COO function. The proposed 
rule change would provide several benefits to OCC. For example, the 
separation of the Executive Chairman and CEO would provide for an 
effective counterbalance in the management and oversight of OCC and 
allow for a broader range of skill, experience and perspectives between 
the roles of Executive Chairman and CEO. In addition, the separation of 
these roles would enable the Executive Chairman to serve a valuable 
advisory role in assisting the CEO with strategic plan development as 
well as management succession planning by assisting in developing, 
coaching and mentoring members of the senior management team in a 
separate capacity than that of the CEO.
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    \19\ See supra n. 15.
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    Article IV of the By-Laws generally sets forth the selection and 
authorities of OCC's officers and the Executive Chairman. Section 1 
establishes the selection of the Executive Chairman by the Board, and 
provides that the Executive Chairman ``shall be elected by the Board of 
Directors from among the full-time employees of the Corporation.'' \20\ 
Because, as currently structured, the Executive Chairman also serves as 
CEO by virtue of his role as Executive Chairman, there is no separate 
provision in the By-Laws for selection or appointment of a CEO. Under 
the By-Laws, the Executive Chairman is responsible for the control 
functions of OCC, including enterprise risk management, internal audit 
and compliance, and external affairs, and has supervision over the 
officers and agents he appoints.\21\ In his role as CEO, the Executive 
Chairman is also ``an officer responsible for all aspects of [OCC's] 
business and . . . its day to day affairs.'' \22\
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    \20\ See OCC By-Laws, Art. IV, Sec. 1.
    \21\ See OCC By-Laws, Art. IV, Sec. 6(a).
    \22\ OCC By-Laws, Art. IV, Sec. 6(a).
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    The proposed rule change would amend Sections 6 and 8 of Article IV 
of the By-Laws to separate these functions

[[Page 67765]]

and divide them between the Executive Chairman and the CEO. Under the 
proposed rule change, the Executive Chairman would be less involved in 
day to day management decisions of the type more typically made by an 
executive but would retain his role vis-[agrave]-vis the Board.\23\ In 
addition, the Executive Chairman would retain responsibility over 
internal audit, public affairs, and government relations.\24\ The CEO 
will be responsible for all aspects of the OCC's business and of its 
day to day affairs, including enterprise risk management and 
compliance, and would be responsible for all aspects of the business of 
the Corporation that do not report directly to the Executive 
Chairman.\25\ The COO would administer the day to day affairs and 
business of the Corporation in accordance with the directions of the 
CEO.
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    \23\ Because the Executive Chairman would be less involved in 
day to day operational issues, the proposed rule change removes the 
requirement that the Executive Chairman must be selected from 
``among the full-time employees of OCC'' to require only that the 
Executive Chairman be selected from ``among the employees of OCC.'' 
This amendment would allow the Executive Chairman to be a part-time 
employee.
    \24\ Although the Chief Audit Executive will report 
administratively to the Executive Chairman, he or she will report 
functionally to the Audit Committee of the Board pursuant to the 
Audit Committee charter.
    \25\ Although the Chief Compliance Officer would report 
administratively to the CEO, he or she would continue to report 
functionally to the Audit Committee of the Board pursuant to the 
committee's charter. Similarly, the Chief Risk Officer would report 
administratively to the CEO; however, he or she would continue to 
report functionally to the Risk Committee of the Board pursuant to 
the Risk Committee charter.
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    In addition to establishing separate By-Law provisions addressing 
the selection and roles of the Executive Chairman and CEO, there are 
numerous provisions throughout OCC's By-Laws and Rules that the 
proposed rule change would amend to change the list of officers 
authorized to act under the relevant provision. In each case, the 
proposed rule change would remove the CAO from the list of officers 
because the office of CAO would no longer be required by OCC's By-Laws. 
In some instances, the Executive Chairman will continue to be listed as 
an authorized individual; in other instances, the reference to the 
Executive Chairman would be replaced by the CEO. Specifically, the 
proposed rule change would replace the reference to the Executive 
Chairman with the CEO in the following By-Law and Rule provisions:

 Approval of a bank or trust company as an approved custodian 
(By-Laws, Art. I, Sec. 1)
 Ability to delegate authority to Designated Officers (By-Laws, 
Art. I, Sec. 1)
 Temporary appointment of a controller/chief accounting officer 
(By-Laws, Art. IV, Sec. 12)
 Temporary approval of a Clearing Member application if 
expedited treatment is requested (By-Laws, Art. V, Sec. 1)
 Limited delegation of authority to approve Clearing Member 
applications (By-Laws, Art. V, Sec. 2)
 Authority to extend the deadline to meet membership conditions 
(By-Laws, Art. V, Sec. 3.01)
 Ability to impose exercise restrictions (By-Laws, Art. VI, 
Sec. 17.01)
 Restricting certain Clearing Member transactions, positions, 
and activities (Rule 305)
 Imposing limitations on Managing Clearing Members with 
insufficient net capital (Rule 309)
 Temporarily approving a facilities management agreement (Rule 
309.01, 309.02)
 Imposing limitations or restrictions on Appointed Clearing 
Members with insufficient net capital (Rule 309A)
 Temporarily accepting a letter of credit that does not meet 
rule requirements as a margin asset under unusual circumstances (Rule 
604)
 Permitting filing of an exercise notice after the deadline to 
correct a bona fide error (Rule 801)
 Requiring reports regarding exercise allocation under certain 
circumstances (Rule 804)
 Remitting a filing fee (Rule 805)
 Extending or postponing the time for delivery to a date 
regarding settlements to be made through the facilities of the 
correspondent clearing corporation (Rule 901)
 Extending or postponing the time for delivery on broker-to-
broker settlements (Rule 903)
 Determining whether good cause exists for failure to deliver 
or receive (Rule 1309)
 Extending or postponing the exercise settlement date for 
Treasury security options (Rule 1402)
 Determining whether good cause exists for a failure to match 
(Rule 1405)
 Advancing or postponing the exercise settlement date for 
foreign currency options (Rule 1604)
     Determining whether good cause exists for failure to 
deliver or pay (Rule 1610).

    These provisions generally involve more routine day to day business 
decisions or are, by their terms, temporary. Consequently, OCC believes 
these provisions are therefore more appropriately authorized by a 
member of management such as the CEO or COO rather than at the Board 
level by the Executive Chairman.
    With respect to other provisions, the proposed rule change would 
add the CEO as an authorized officer but would not remove the authority 
of the Executive Chairman to act. These provisions include:

 Those related to declaring and acting in an emergency (By-
Laws, Art. III, Sec. 15; Art. IX, Sec. 14)
 the ability to appoint officers, including Vice Presidents 
(By-Laws, Art. IV, Secs. 2, 3 and 9)
 the suspension of Clearing Members (By-Laws, Art. IV, Sec. 6)
 signing OCC share certificates (By-Laws, Art. IX, Sec. 12)
 extending settlements (Rule 505)
 waiving margin in extraordinary circumstances (Rule 609A)
 increasing the size or amount of cash in the clearing fund 
(Rules 1001, 1002)
 determining reasonable methods to borrow or obtain funds using 
clearing fund assets (Rule 1006)
 determining not to liquidate a Clearing Member's assets (Rule 
1104)
 the use of private auctions to liquidate a suspended Clearing 
Member's assets (Rule 1104.02)
 determining not to liquidate a suspended Clearing Member's 
assets or take protective actions (Rule 1106).

    OCC believes that these provisions should continue to include the 
Executive Chairman as an authorized individual to maintain appropriate 
flexibility in these critical decisions, which primarily involve 
emergency or other exigent circumstances, determinations around OCC's 
management structure, and other activities generally outside of OCC's 
day to day activities (e.g., signing OCC share certificates), so that 
management has the capacity to carry out OCC's affairs in such 
circumstances even if a particular officer is absent or is otherwise 
unable to perform his or her duties.
(2) Elimination of a Mandatory CAO
    In addition to separating the roles of the Executive Chairman and 
CEO, the proposed rule change would eliminate the requirement in the 
By-Laws for the Board to elect a CAO. As part of the 2017 Amendments, 
the By-Laws require the Board to elect both a COO and a CAO.\26\ The 
2017 Amendments added the requirement of a CAO in part to ensure 
flexibility and avoid

[[Page 67766]]

concentration of authority and responsibility in any one officer.\27\ 
As discussed above, with the separation of the Executive Chairman and 
CEO roles to establish a separate CEO, the need for a CAO to ensure 
sufficient flexibility is no longer necessary. Consequently, the 
proposed rule change would eliminate the requirement for the Board to 
elect a CAO; however, OCC notes that the Board would retain authority 
under the existing By-Laws to ``elect one or more Vice Presidents or 
such other officers as it may from time to time determine are required 
for the efficient management and operation of the Corporation.'' \28\ 
Finally, in those instances where the elimination of the CAO role 
reduces the number of named authorized individuals to two, the proposed 
rule change would allow the CEO and COO to delegate authority to 
certain ``Designated Officers'' if the CEO and COO were unavailable to 
exercise the authority. In these cases, the Designated Officer must be 
of the rank of Senior Vice President or higher \29\ and delegated by 
either the CEO or COO. OCC believes delegation in these instances to 
senior officers of the Corporation is appropriate to ensure that the 
authority can be exercised if necessary in the event the CEO and COO 
are both unavailable.
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    \26\ See OCC By-Laws, Art. IV, Sec. 8.
    \27\ See Securities Exchange Act Release No. 80531 (April 26, 
2017), 82 FR 20502 (May 2, 2017) (SR-OCC-2017-002) (Order Approving 
Proposed Rule Change Concerning Changes to The Options Clearing 
Corporation's Management Structure).
    \28\ OCC By-Laws, Art. IV, Sec. 1.
    \29\ OCC notes that such delegations would therefore be limited 
to Senior Vice Presidents and Executive Vice Presidents of OCC.
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    The ability to have multiple officers (and, in some instances, 
their delegates) authorized to take action and assume responsibility 
helps to ensure that responsibility is not concentrated in any one 
officer, that OCC's affairs are carried out efficiently, and that 
management has the capacity to continue carrying out OCC's business and 
day to day affairs even if a particular officer is absent or is 
otherwise unable to perform his or her duties. Consequently, although 
the proposed rule change would eliminate the CAO as a required officer, 
the separation of the Executive Chairman and CEO roles would create 
another officer; thus, there will generally remain multiple officers 
authorized to act and assume responsibility (i.e., the CEO and COO), 
which will retain the current level of flexibility.
(3) Amendments to the Management Director Provisions in OCC's By-Laws
    Article III of OCC's By-Laws mandates that the Board include one 
``Management Director'' and that the Executive Chairman be elected to 
fill that seat.\30\ In light of the changes to the role of the 
Executive Chairman as part of the proposed rule change, OCC is also 
proposing to provide flexibility with respect to this Board seat. 
Although the concept of a Management Director would be retained, the 
proposed rule change would amend the By-Laws to provide a wider degree 
of flexibility. Specifically, the proposed rule change would amend the 
By-Laws to: (1) Allow, but not require, a Management Director on the 
Board; and (2) eliminate the requirement that the Management Director 
also be the Executive Chairman.
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    \30\ See OCC By-Laws, Art. III, Sec. 1 (``The Board of Directors 
of the Corporation shall be composed of nine Member Directors, the 
number of Exchange Directors fixed by or pursuant to Section 6 of 
this Article III, five Public Directors, and one Management 
Director.''); see also OCC By-Laws, Art. III, Sec. 7 (``The 
Executive Chairman of the Corporation, by virtue of holding his 
office, shall be elected as a Management Director by the 
stockholders at each annual meeting of the stockholders.'').
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    OCC believes that these changes would create more flexibility for 
filling the role of Management Director and could more easily 
accommodate potential future scenarios, for example, if the Management 
Director seat shifts from the Executive Chairman to the CEO.
(4) Conforming Changes to Certain OCC Charters and Policies
    In connection with the proposed changes described above, OCC is 
also proposing to make certain conforming amendments to the following 
charters: (1) Board Charter; (2) Audit Committee Charter (``AC 
Charter''); (3) CPC Charter; (4) Governance and Nominating Committee 
Charter (``GNC Charter''); and (5) Risk Committee Charter (``RC 
Charter'').\31\
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    \31\ OCC notes that there would be no changes to its Technology 
Committee Charter.
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    OCC is proposing to amend the Board Charter to remove the 
references to the CAO and to conform provisions regarding the Executive 
Chairman and CEO to reflect the separation of those roles and the 
revised duties each has pursuant to the amendments in the proposed rule 
change and to reflect the removal of the CEO's role in certain Board 
matters due the CEO position no longer being linked to the position of 
Executive Chairman. In addition, OCC is proposing to conform the 
description of the Management Director in the Board Charter to the 
changes described in the proposed rule change.
    OCC is also proposing to amend the AC Charter to conform provisions 
regarding the Executive Chairman and CEO to reflect the separation of 
those roles and the revised duties each has pursuant to the amendments 
in the proposed rule change. OCC is proposing to clarify in the AC 
Charter that, following the separation of the Executive Chairman and 
CEO roles, OCC's Chief Compliance Officer would report administratively 
to the CEO and functionally to the Audit Committee, and OCC's Chief 
Audit Executive would report administratively to the Executive Chairman 
and functionally to the Audit Committee. The proposed changes would 
further clarify that the Audit Committee would consult with the 
Executive Chairman in reviewing the performance of the Internal Audit 
function and the Chief Audit Executive and consult with the CEO in 
reviewing the performance of the Compliance function and Chief 
Compliance Officer.
    OCC is also proposing to amend the CPC Charter and the GNC Charter 
to conform provisions regarding the Executive Chairman and CEO to 
reflect the separation of those roles and the revised duties each has 
pursuant to the amendments in the proposed rule change and to reflect 
the elimination of CAO as a required officer of OCC.
    Finally, OCC is proposing to amend the RC Charter to conform 
provisions regarding the Executive Chairman and CEO to reflect the 
separation of those roles and the revised duties each has pursuant to 
the amendments in the proposed rule change. OCC is proposing to clarify 
in the RC Charter that, following the separation of the Executive 
Chairman and CEO roles, OCC's Chief Risk Officer will report 
administratively to the CEO and functionally to the Risk Committee.
(2) Statutory Basis
    OCC believes the proposed rule change is consistent with Section 
17A of the Act \32\ and the rules thereunder applicable to OCC. Section 
17A(b)(3)(A) of the Act requires, among other things, that a clearing 
agency be so organized and have the capacity to be able to facilitate 
the prompt and accurate clearance and settlement of securities 
transactions and derivative agreements, contracts, and transactions for 
which it is responsible.\33\ Rule 17Ad-22(e)(2) further requires, in 
part, that each registered clearing agency have governance arrangements 
that are clear

[[Page 67767]]

and transparent and that specify clear and direct lines of 
responsibility.\34\
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    \32\ 15 U.S.C. 78q-1.
    \33\ 15 U.S.C. 78q-1(b)(3)(A).
    \34\ 17 CFR 17Ad-22(e)(2).
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    OCC believes that the proposed rule change is consistent with 
Section 17A(b)(3)(A) of the Act and the rules thereunder because it is 
designed to ensure that OCC is so organized and has the capacity to be 
able to facilitate the prompt and accurate clearance and settlement of 
securities transactions and derivative agreements, contracts, and 
transaction for which it is responsible. By implementing certain 
leadership changes intended to promote OCC's efficient management and 
operation, OCC believes it enhances its organization and its ability to 
operate effectively and efficiently. Specifically, OCC believes that by 
reallocating certain responsibilities currently held by the Executive 
Chairman/CEO to two individuals, those responsibilities would be less 
concentrated in a single individual. As noted above, since the 
implementation of the 2017 Amendments, OCC has taken significant steps 
to enhance its senior management team OCC has taken significant steps 
to enhance its senior management team so that it has a broad range of 
knowledge, skills, and experience and an alignment of officers' 
responsibilities with their skills and experience.\35\ As a result, OCC 
believes it would now benefit further from re-separating the Executive 
Chairman and CEO roles so that the Executive Chairman would remain 
focused on facilitating Board leadership and management oversight as 
well as overseeing the work of internal audit, while the CEO would 
oversee all of OCC's business, operational and corporate support 
functions, with key operational and corporate support functions 
reporting indirectly to the CEO through the COO function. OCC believes 
the proposed separation of the Executive Chairman and CEO would provide 
for an effective counterbalance in the management and oversight of OCC 
and allow for a broader range of skill, experience and perspectives 
between the roles of Executive Chairman and CEO. In addition, the 
separation of these roles would enable the Executive Chairman to serve 
a valuable advisory role in assisting the CEO with strategic plan 
development as well as management succession planning by assisting in 
developing, coaching and mentoring members of the senior management 
team in a separate capacity than that of the CEO.
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    \35\ See supra n. 15.
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    Moreover, by separating the Executive Chairman and CEO roles to 
establish a separate CEO, OCC believes it is no longer necessary for 
its By-Laws to explicitly require a CAO to ensure sufficient 
flexibility in its management structure. OCC notes that the Board would 
retain authority under the existing By-Laws to ``elect one or more Vice 
Presidents or such other officers as it may from time to time determine 
are required for the efficient management and operation of the 
Corporation.'' \36\ Additionally, in those instances where the 
elimination of the CAO role reduces the number of named authorized 
individuals to two, the proposed rule change would allow the CEO and 
COO to delegate authority to certain delegated officers if the CEO and 
COO were unavailable to exercise the authority. In these cases, the 
Designated Officer must be of the rank of Senior Vice President or 
higher and delegated by either the CEO or COO. OCC believes delegation 
in these instances to senior officers of the Corporation is appropriate 
to ensure that the authority can be exercised if necessary in the event 
the CEO and COO are both unavailable.
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    \36\ OCC By-Laws, Art. IV, Sec. 1.
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    As discussed above, in light of the changes to the role of the 
Executive Chairman as part of the proposed rule change, OCC is also 
proposing to provide flexibility with respect to the Management 
Director seat on the Board. The proposed rule change would provide a 
wider degree of flexibility by allowing, but not requiring, a 
Management Director on the Board and eliminating the requirement that 
the Management Director also be the Executive Chairman. These changes 
would create more flexibility for filling the role of Management 
Director and more easily accommodate potential future scenarios.
    For the reasons set forth above, OCC believes the proposed rule 
change is designed to ensure that OCC is so organized and has the 
capacity to be able to facilitate the prompt and accurate clearance and 
settlement of securities transactions and derivative agreements, 
contracts, and transaction for which it is responsible consistent with 
the requirements of Section 17A(b)(3)(A) of the Act.\37\
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    \37\ 15 U.S.C. 78q-1(b)(3)(A).
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    Rule 17Ad-22(e)(2) requires covered clearing agencies to maintain 
written policies and procedures reasonably designed to, among other 
things, provide for governance arrangements that are clear and 
transparent and specify clear and direct lines of responsibility.\38\ 
The proposed rule change would amend OCC's By-Laws, Rules, and 
charters, which are publicly available documents, to provide explicit, 
clear, and transparent statements of the responsibilities and authority 
of the newly separated Executive Chairman and CEO roles (and the 
elimination of a required CAO) and direct reporting lines thereunder 
within the overall management structure of OCC. For example, the 
proposed rule change would explicitly state that the Executive Chairman 
would oversee the work of internal audit, public affairs, and 
government relations, while the CEO would oversee all of OCC's 
business, operational and corporate support functions, with key 
operational and corporate support functions reporting indirectly to the 
CEO through the COO function. Moreover, in those instances where the 
elimination of the CAO role reduces the number of individuals 
authorized to take certain actions, the proposed rule change would 
provide a clear and transparent mechanism for the CEO and COO to 
delegate authority to certain Designated Officers if the CEO and COO 
were unavailable to exercise the authority. Additionally, the proposed 
changes to provide additional flexibility regarding the Management 
Director role would also be clearly and transparently described in 
OCC's By-Laws and Board Charter. As a result, OCC believes the proposed 
rule change is reasonably designed to provide for governance 
arrangements that are clear and transparent and specify clear and 
direct lines of responsibility in accordance with Rule 17Ad-
22(e)(2).\39\
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    \38\ 17 CFR 17Ad-22(e)(2)(i) and (v).
    \39\ 17 CFR 17Ad-22(e)(2).
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(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Exchange Act \40\ requires that the 
rules of a clearing agency not impose any burden on competition not 
necessary or appropriate in furtherance of the Act. OCC does not 
believe that the proposed rule change would impose any burden on 
competition. The proposed rule change would implement certain 
leadership changes within OCC's management to separate the Executive 
Chairman and CEO roles and to remove the CAO as a required officer. 
This proposed rule change would not inhibit access to OCC's services or 
disadvantage of favor any particular user in relationship to another. 
As a result, OCC believes the proposed rule change would not impact or 
impose a burden on competition.
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    \40\ 15 U.S.C. 78q-1(b)(3)(I).

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[[Page 67768]]

(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-2018-015 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-2018-015. 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-2018-015 and 
should be submitted on or before January 22, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
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    \41\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2018-28385 Filed 12-28-18; 8:45 am]
 BILLING CODE 8011-01-P