[Federal Register Volume 84, Number 145 (Monday, July 29, 2019)]
[Notices]
[Pages 36632-36635]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15971]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86436; File No. SR-OCC-2019-006]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Make Administrative Updates to The Options Clearing Corporation's Risk 
Management Policies

July 23, 2019.
    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 July 12, 2019, The Options Clearing Corporation 
(``OCC'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by OCC. OCC filed the 
proposed rule change pursuant to Section 19(b)(3)(A)(iii) \3\ of the 
Act and Rule 19b-4(f)(3) \4\ thereunder so that the proposal was 
effective upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(3).
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    OCC is filing a proposed rule change to make administrative changes 
to its Risk Management Framework Policy (``RMF Policy''), Clearing Fund 
Methodology Policy (``CFM Policy''), Collateral Risk Management Policy 
(``CRM Policy''), Counterparty Credit Risk Management Policy (``CCRM 
Policy''), Default Management Policy (``DM Policy''), Margin Policy, 
and Model Risk Management Policy (``MRM Policy'') (collectively, ``OCC 
Policies'').
    The proposed changes to the OCC Policies are included in 
confidential Exhibits 5A-5G. Material proposed to be added to the OCC 
Policies as currently in effect is underlined and material proposed to 
be deleted is marked in strikethrough text. All capitalized terms not 
defined herein have the same meaning as set forth in the OCC By-Laws 
and Rules.\5\
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    \5\ OCC's By-Laws and Rules can be found on OCC's public 
website: http://optionsclearing.com/about/publications/bylaws.jsp.
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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
Background
    On September 28, 2016 the Commission adopted amendments to Rule 
17Ad-22 \6\ and added new Rule 17Ab2-2 \7\ pursuant to Section 17A of 
the Exchange Act \8\ and the Payment, Clearing, and Settlement 
Supervision Act of 2010 \9\ 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) \10\ (collectively, the new and 
amended rules are herein referred to as ``CCA Rules''). The CCA Rules 
require that covered clearing agencies ``establish, implement, maintain 
and enforce written policies and procedures reasonably designed to . . 
.'' comply with these enhanced standards. OCC is a covered clearing 
agency under the CCA Rules and therefore is subject to the CCA Rules. 
Accordingly, OCC maintains a number of policies that have been filed 
with the Commission and which need to be updated periodically so that 
those policies remain accurate and consistent with other OCC rules.
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    \6\ 17 CFR 240.17Ad-22.
    \7\ 17 CFR 240.17Ab2-2.
    \8\ 15 U.S.C. 78q-1.
    \9\ 12 U.S.C. 5461 et seq.
    \10\ 17 CFR 240.17Ad-22(a)(5).
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    On February 13, 2019, the Commission approved a proposed rule 
change by OCC concerning changes in OCC's management structure 
specifically related to, at that time, OCC's Executive Chairman and 
Chief Executive Officer (``CEO''), Chief Operating Officer (``COO''), 
and Chief Administrative Officer (``CAO'') (collectively referred to as 
the ``Office of the Chief Executive Officer'' or ``Office

[[Page 36633]]

of the CEO'').\11\ The primary purpose of the proposed rule change was 
to: (1) Reestablish the separation of the roles of Executive Chairman 
and CEO and reallocate authority and responsibilities between the two 
roles and (2) remove the requirement from OCC's By-Laws that the Board 
of Directors (``Board'') elect a CAO and delete the references to a CAO 
throughout OCC's By-Laws, Rules, and Board/Board Committee charters. 
OCC proposes to revise the OCC Policies to align the policies with 
these recently approved changes to OCC's By-Laws and Rules and to 
otherwise enhance the accuracy, clarity, and consistency of the OCC 
Policies.
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    \11\ See Securities Exchange Act Release No. 85129 (February 13, 
2019), 84 FR 5129 (February 20, 2019) (SR-OCC-2018-015) (Order 
Approving Proposed Rule Change, as Modified by Partial Amendment No. 
1, Concerning Changes to The Options Clearing Corporation's 
Management Structure). Upon adoption of the proposed rule change, 
the Office of the CEO is now comprised of the Executive Chairman, 
CEO, and COO.
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Proposed Changes
    OCC proposes to make administrative changes to the OCC Polices to: 
(1) Conform them to the recently approved management structure changes 
implemented in OCC's By-Laws and Rules,\12\ (2) update various internal 
OCC policy and procedure names, and (3) make other non-substantive 
clarifying and conforming changes.
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    \12\ Id.
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1. Changes To Conform to By-Laws and Rules
    As noted above, OCC recently adopted a proposed rule change that 
separated the roles of Executive Chairman and CEO, removed the 
requirement from OCC's By-Laws that the Board elect a CAO, and deleted 
references to the CAO throughout OCC's By-Laws, Rules, and Board/Board 
Committee charters. OCC now proposes to make conforming revisions to 
the OCC Policies to align any responsibilities or authority of members 
of the Office of the CEO in such policies with the recently approved 
changes to OCC's By-Laws and Rules. The proposed rule change is 
intended to ensure the accuracy of the OCC Policies and their 
consistency with OCC's By-Laws and Rules and is not intended to 
substantively change the responsibility or authority of members of the 
Office of the CEO.
    OCC proposes to revise sections of its CFM Policy concerning (i) 
temporary increases to the minimum Clearing Fund cash requirement, (ii) 
temporary increases in the overall size of the Clearing Fund, (iii) 
escalation of intra-day margin calls that exceed 100% of a Clearing 
Member's net capital, (iv) notification and approvals of intra-month 
resizing of the Clearing Fund, and (v) authority to make proportionate 
changes against the Clearing Fund to reflect the new composition the 
Office of the CEO. OCC also proposes to revise its CCRM Policy to 
reflect that the CEO and COO now have the authority to approve Clearing 
Members, banks, liquidity providers, investment counterparties, and 
financial market utility relationships to align with the recently 
approved changes to OCC's By-Laws and Rules re-assigning responsibility 
for routine day-to-day business decisions to these senior officers.\13\ 
OCC also proposes to revise sections of the CCRM Policy concerning the 
Watch Level Reporting process to reflect the new composition of the 
Office of the CEO and appropriately describe Watch Level notification 
and escalation requirements under the new management structure.
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    \13\ See supra note 11.
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    In addition, OCC proposes to revise its DM Policy to reflect the 
new composition of the Office of the CEO and their responsibilities in 
the default management process, including the authority for any member 
of the Office of the CEO to (i) suspend a Clearing Member, (ii) 
authorize a draw on OCC's credit facilities, (iii) authorize an 
extension of daily settlement times under OCC Rule 505, (iv) defer the 
close-out of some or all positions of a suspended clearing member, and 
(v) make proportionate charges against and require the replenishment of 
OCC's Clearing Fund consistent with OCC's By-Laws and Rules. OCC also 
proposes to revise its Margin Policy to reflect the new composition of 
the Office of the CEO and the authority of the officers thereof to 
approve intra-day margin calls outside of standard equity trading 
hours. OCC would also revise certain of the OCC Policies to include a 
defined term for ``Office of the Chief Executive Officer.''
2. Related Policy and Procedure Updates
    As discussed above, the CCA Rules require OCC to ``establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to . . .'' comply with the objectives and standards 
of the CCA Rules.\14\ The OCC Policies currently contain references to 
certain related policies and procedures that OCC maintains in support 
of the OCC Policies. These policies and procedures are reviewed and 
updated on a periodic basis, which at times may result in the 
consolidation of certain related procedures or changes in policy or 
procedure names. OCC proposes to revise the OCC Policies to update 
internal policy and procedures names to reflect any changes resulting 
from these periodic reviews to ensure the accuracy, consistency, and 
clarity of the OCC Policies. The proposed changes are administrative in 
nature and are not intended to change the substance of the OCC 
Policies.
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    \14\ See 17 CFR 240.17Ad-22.
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3. Other Non-Substantive Clarifying and Conforming Changes
    OCC also proposes to make a number of other administrative changes 
to the OCC Policies that would improve the accuracy, consistency, and 
clarity of those documents but would not change the substance or 
requirements of those policies. OCC proposes to revise its RMF Policy 
to clarify that the term ``Residual Risk'' represents the level of risk 
exposure posed ``to'' (as opposed to ``from'') a process or activity 
after the application of controls or other risk-mitigating factors and 
to align the definition and usage of the term throughout the policy. 
OCC would also revise a section header in the RMF Policy to note that 
the section in question discusses OCC's use of risk tolerances in 
addition to OCC's Risk Appetite Framework.
    OCC proposes to revise its DM Policy to update cross-references to 
certain provisions of OCC's By-Laws relating to the Clearing Fund that 
were recently relocated to Chapter X of OCC's Rules.\15\ The DM Policy 
would also be revised to eliminate an incorrect reference to Rule 913, 
which does not currently exist in OCC's Rules. OCC also proposes to 
revise its Margin Policy to update cross-references to relevant 
chapters of OCC's Margins Methodology. Additionally, OCC would update 
the Recalibration section of the policy to clarify that, consistent 
with current practice, the standard historical data look-back period 
used for econometric estimation is ten years for univariate parameters 
and 500 days for correlations.\16\ Finally,

[[Page 36634]]

OCC proposes to revise its MRM Policy to clarify that OCC's Model Risk 
Working Group is responsible for tracking ``model issues and 
activities'' as opposed to ``model defects and remediation.''
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    \15\ See Securities Exchange Act Release No. 83714 (July 26, 
2018), 83 FR 37570 (August 1, 2018) (SR-OCC-2018-803) (Notice of No 
Objection to Advance Notice, as Modified by Amendments No. 1 and 2, 
Concerning Proposed Changes to The Options Clearing Corporation's 
Stress Testing and Clearing Fund Methodology) and Securities 
Exchange Act Release No. 83735 (July 27, 2018), 83 FR 37855 (August 
2, 2018) (SR-OCC-2018-008) (Order Approving Proposed Rule Change, as 
Modified by Amendments No. 1 and 2, Related to The Options Clearing 
Corporation's Stress Testing and Clearing Fund Methodology).
    \16\ See Securities Exchange Act Release No. 83305 (May 23, 
2018), 83 FR 24536 (May 29, 2018) (SR-OCC-2017-811) (Notice of No 
Objection to Advance Notice Filing Concerning The Options Clearing 
Corporation's Margin Methodology) and Securities Exchange Act 
Release No. 83326 (May 24, 2018), 83 FR 25081 (May 31, 2018) (SR-
OCC-2017-022) (Order Approving Proposed Rule Change Related to The 
Options Clearing Corporation's Margin Methodology).
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(2) Statutory Basis
    OCC believes the proposed rule change is consistent with Section 
17A of the Act \17\ and the rules thereunder applicable to OCC. Section 
17A(b)(3)(F) of the Act \18\ requires, among other things, that the 
rules of a clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions and, to 
the extent applicable, derivative agreements, contracts, and 
transactions and to assure the safeguarding of securities and funds 
which are in the custody or control of the clearing or agency or for 
which it is responsible. The proposed rule change is designed to align 
the OCC Policies with previously approved changes to OCC's By-Laws, 
Rules, and risk models \19\ and otherwise enhance the accuracy, 
clarity, and consistency of the OCC Policies. The proposed changes 
would, among other things, ensure that the OCC Policies maintain 
accurate descriptions of the roles and responsibilities of the Office 
of the CEO and reference the appropriate procedures maintained under 
the OCC Policies to effectively carry out the requirements of those 
polices and thereby facilitate the effective operation of OCC's core 
clearance, settlement, and risk management activities. OCC believes 
that the proposed rule change is therefore designed, in general, to 
promote the prompt and accurate clearance and settlement of securities 
and derivatives transactions and assure the safeguarding of securities 
and funds which are in the custody or control of OCC or for which it is 
responsible in accordance with Section 17A(b)(3)(F) of the Act.\20\
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    \17\ 15 U.S.C. 78q-1.
    \18\ 15 U.S.C. 78q-1(b)(3)(F).
    \19\ See supra notes 11, 12, 15, and 16 and associated text.
    \20\ 15 U.S.C. 78q-1(b)(3)(F).
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    Rule 17Ad-22(e)(2)(i) \21\ requires each covered clearing agency to 
establish, implement, maintain and enforce written policies and 
procedures reasonably designed to provide for governance arrangements 
that are clear and transparent. As discussed above, the proposed rule 
change is designed to align the OCC Policies with previously approved 
changes to OCC's By-Laws and Rules and otherwise enhance the accuracy, 
clarity, and consistency of the OCC Policies. The proposed changes 
would, among other things, ensure that the OCC Policies maintain 
accurate descriptions of the roles and responsibilities of the Office 
of the CEO and reference the appropriate procedures maintained under 
the OCC Policies to effectively carry out the requirements of those 
polices. OCC therefore believes the proposed rule change is consistent 
with Rule 17Ad-22(e)(2)(i).\22\ Moreover, OCC believes the proposed 
rule change promotes compliance with the CCA Rules \23\ generally by 
improving the accuracy, clarity, and consistency of the OCC Policies so 
that they remain reasonably designed to achieve the standards and 
requirements thereunder.
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    \21\ 17 CFR 240.17Ad-22(e)(2)(i).
    \22\ Id.
    \23\ 17 CFR 240.17Ad-22.
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(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Act \24\ 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 have any impact or impose a 
burden on competition. The proposed rule change is intended to make 
clarifying and conforming changes to OCC's internal policies in 
connection with the implementation of a proposed rule change that was 
previously approved by the Commission \25\ and other administrative 
updates that would have no impact on Clearing Members or other market 
participants. Accordingly, OCC does not believe that the proposed rule 
change would have any impact or impose a burden on competition.
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    \24\ 15 U.S.C. 78q-1(b)(3)(I).
    \25\ See supra notes 11, 12, 15, and 16 and associated text.
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(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

    Pursuant to Section 19(b)(3)(A)(iii) \26\ of the Act, and Rule 19b-
4(f)(3) thereunder,\27\ the proposed rule change is filed for immediate 
effectiveness as it is concerned solely with the administration of OCC. 
At any time within 60 days of the filing of the proposed rule change, 
the Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.\28\
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    \26\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \27\ 17 CFR 240.19b-4(f)(3).
    \28\ Notwithstanding its immediate effectiveness, implementation 
of this rule change will be delayed until this change is deemed 
certified under CFTC Regulation 40.6.
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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-2019-006 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-2019-006. 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

[[Page 36635]]

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-2019-006 and 
should be submitted on or before August 19, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-15971 Filed 7-26-19; 8:45 am]
 BILLING CODE 8011-01-P