[Federal Register Volume 84, Number 196 (Wednesday, October 9, 2019)]
[Notices]
[Pages 54239-54243]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22025]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87207; File No. SR-OCC-2019-008]
Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change To Establish a Regulatory
Committee of The Options Clearing Corporation's Board of Directors
October 3, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 54240]]
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on September 25, 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. 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 would establish the OCC Regulatory
Committee (``Committee'') and adopt the OCC Regulatory Committee
Charter (``Committee Charter''). The Committee Charter is being
submitted in its entirety as new rule text. A corresponding proposed
change to OCC's Article III, Section 4 of the OCC By-Laws (``By-Laws'')
and the OCC Board of Directors Charter and Corporate Governance
Principles (``Board Charter'') would be adopted in to list the
Committee among the other OCC Board of Directors (``Board'')
committees. The proposed rule change does not require any changes to
the text of OCC's Rules.
The proposed rule change 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.
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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
OCC is filing this proposed rule change to establish a Board-level
Regulatory Committee that would: (a) Operate separately from the
current OCC Audit Committee; (b) complement the work done by
independent consultants on regulatory compliance matters; (c) take over
and continues the work done by the current OCC Regulatory Oversight
Working Group (``ROWG''), including but not limited to OCC's efforts to
demonstrate compliance with applicable laws and regulations; and (d) be
solely comprised of OCC's Public Directors, as that term is defined in
the Board Charter.\4\ For the avoidance of doubt, upon approval of the
proposed Committee Charter, the ROWG will cease to exist.
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\4\ OCC's Board Charter can be found on OCC's website: https://www.theocc.com/about/corporate-information/board-charter.jsp.
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The contents of the proposed rule change are summarized as follows.
Regulatory Committee Charter
Committee Purpose
The proposed Committee Charter would state that the OCC Board has
established the Committee to assist the Board in overseeing OCC's
efforts to demonstrate compliance with its regulatory obligations with
particular attention to the OCC Regulatory Compliance Oversight Group
(``RCOG''), a working group established by OCC management. The proposed
Committee Charter would explain that given OCC's designation as a
Systemically Important Financial Market Utility, the Board believes it
is critical that OCC demonstrate its continued strong commitment to
compliance with applicable regulations in the conduct of its core
clearance and settlement activities. The proposed Committee Charter
would also state that nothing in the Committee Charter alters the
existing roles and responsibilities of other Board Committees.
Committee Membership and Organization
Composition
The proposed Committee Charter would provide that the Committee
will be comprised of all OCC Public Directors, as that term is defined
in the Board Charter. The proposed Committee Charter would state that
(i) unless a chair of the Committee (``Chair'') is elected by the
Board, the members of the Committee will designate a Chair by majority
vote of the full membership, and (ii) in the absence of the Chair at
any meeting of the Committee, those members of the Committee present
would designate a Committee member to serve as acting Chair. The
proposed Committee Charter would explain that in the event of a vacancy
on the Committee, the Committee would continue to undertake its
responsibilities, so long as the remaining Committee members are
capable of satisfying the quorum requirement.
Meetings
The proposed Committee Charter would provide that the Committee
will meet at least quarterly, or more frequently, as deemed necessary
by the Committee in order to fulfill its purposes as described in the
Committee Charter. The proposed Committee Charter would additionally
provide that other meetings may be called by the Chair as circumstances
dictate. The proposed Committee Charter would explain that the Chair or
designee, in consultation with OCC management, as well as the OCC
Corporate Secretary, would establish the agenda for Committee meetings.
The proposed Committee Charter would state that members of the
Committee may ask members of OCC management or others to attend the
meeting and provide pertinent information as necessary. The proposed
Committee Charter would provide that the OCC Chief Compliance Officer,
or one of his or her deputies if the Chief Compliance Officer in unable
to attend, shall attend all meetings of the Committee. The proposed
Committee Charter would provide that the Committee may call executive
sessions from which members of management and invited guests, and other
Committee members to the extent the Chair determines there exists an
actual or potential conflict of interest, may be excluded. The proposed
Committee Charter would explain that the Chair or acting Chair, as
applicable, would serve as Chair for the executive session. The
proposed Committee Charter would explain that members of the Committee
may participate in meetings by means of a conference telephone call or
other means of communication that allows all participants in the
meeting to hear each other.
Quorum
The proposed Committee Charter would state that a simple majority
of the
[[Page 54241]]
Committee members would constitute a quorum for the transaction of
business.
Minutes and Reports
The proposed Committee Charter would require that the Committee
maintain minutes of all Committee meetings. The proposed Committee
Charter would explain that the Chair or acting Chair, as applicable,
would determine whether separate minutes of executive sessions are to
be recorded as well as determined by the level of detail to be included
in such minutes, taking into consideration the sensitivity of the
matters to be discussed and the possibility that candor might be
limited if detailed minutes are recorded. The proposed Committee
Charter would provide that meeting minutes would reflect that an
executive session was convened and broadly describe the topic(s)
discussed. The proposed Committee Charter would require that minutes of
Committee meetings are circulated to the Board.
The proposed Committee Charter would provide that the Committee
would make such reports to the Board as deemed necessary or advisable
and that the Chair is responsible for ensuring that important issues
discussed at Committee meetings are reported timely to the Board. The
proposed Committee Charter would require that on an annual basis, the
Committee would provide a report to the Board summarizing its
activities during the previous year.
Committee Authority
The proposed Committee Charter would provide that subject to the
direction of the Board, the Committee is authorized to act on behalf of
the Board with respect to any matter necessary or appropriate to the
accomplishment of the purpose and responsibilities set forth in the
Committee Charter. The proposed Committee Charter would further provide
that in discharging its role, the Committee may inquire into any matter
it considers appropriate to carry out its purpose and responsibilities,
with access to all books, records, facilities and personnel of OCC and
that the Committee may confer with management and other employees of
OCC to the extent it may deem necessary or appropriate to fulfill its
duties.
The proposed Committee Charter would provide that the Committee
would have the authority to hire specialists or rely upon other outside
advisors, including legal advisors, to assist it in carrying out its
activities. The proposed Committee Charter would also state that the
Committee would have the authority to approve the fees and retention
terms applicable to such advisors and specialists. The proposed
Committee Charter would require that the Committee's annual report to
the Board reference any engagement of specialists or outside advisors,
including any fees and expenses associated therewith.
Committee Functions and Responsibilities
The proposed Committee Charter would state that the Committee's
role is one of oversight, and that it remains the responsibility of the
RCOG to identify, manage, monitor, and report on OCC's activities that
demonstrate compliance with regulatory obligations.
The proposed Committee Charter would provide that the Committee
would have the following functions and responsibilities in discharging
its oversight role:
The Committee would oversee, and assist the Board in
evaluating, OCC's efforts to demonstrate compliance with applicable
laws and regulations, including banking and securities laws and other
applicable regulatory guidance and standards, through regular reporting
to the Committee by the RCOG.
The Committee would oversee OCC management's action plans
to achieve compliance with any proposed new regulation to which OCC is
subject.
The Committee would oversee work performed by any
independent compliance auditor(s) engaged by OCC and approved by the
Board.
The Committee would make recommendations to the Board as
it deems appropriate, and as the Board may request.
The Committee would meet with OCC's regulators, with or
without OCC management, as the Committee deems necessary, in order to
discuss OCC's efforts to enhance its regulatory compliance posture.
The Committee would review any annual regulatory
compliance reports provided by OCC management.
The Committee would review any final exam report letter
received from OCC's regulators. Additionally, the Committee would
review any OCC response to an exam report letter received from OCC's
regulators. The Committee would receive a briefing on OCC's action
plans, if any, in response to items identified in any final exam report
letter received from OCC's regulators.
The Committee would perform such other activities
consistent with the Board Charter and By-Laws and applicable legal and
regulatory requirements, as the Committee deems necessary or
appropriate.
Review Cycle
The proposed Committee Charter would provide that the Committee
review the Committee Charter at least once every twelve months and
submit the Committee Charter to the Board for approval, with such
changes, if any, as the Board deems advisable. The proposed Committee
Charter would additionally provide that the Board would have the
authority to diminish or eliminate the duties and obligations of the
Committee as of the date of any final report of any independent
compliance auditor, but in any case, no sooner than three years from
the initial approval of the Committee Charter, subject to the approval
of the Commission.
By-Laws
The proposed rule change would also adopt an amendment to the OCC
By-Laws to include reference to the Regulatory Committee in Article
III, Section 4 to list the Committee among the other OCC Board
committees. The proposed By-Law provision would state that the Board
shall appoint the Committee, having the powers and duties set forth in
the By-Laws and Rules and as delegated by the Board. The proposed By-
Law provision would state that the Committee members will be all OCC
Public Directors. The proposed By-Law provision would state that the
chairman of the Committee shall be designated by the Board or by a
majority vote of the Committee membership from among the members of the
Committee.
Board Charter
The proposed rule change would also adopt an amendment to the
Committees section of the Board Charter to include reference to the
Committee among the other Board committees. The proposed Board Charter
amendment would state that the Board has established Board-level
committees including: Audit, Compensation and Performance, Governance
and Nominating, Regulatory, Risk and Technology.
2. Statutory Basis
OCC believes the proposed rule change is consistent with Section
17A of the Act \5\ and the rules thereunder applicable to OCC. Section
17A(b)(3)(A) of the Act \6\ requires, among other things, that a
clearing agency be so organized and have the capacity to be able to
facilitate the prompt and
[[Page 54242]]
accurate clearance and settlement of securities transactions and
derivatives agreements, contracts, and transactions for which it is
responsible. OCC believes the proposed rule change is consistent with
this requirement because the change would help ensure 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. For example, the proposed Committee Charter would
provide that, among other things, the Committee would oversee OCC
management's action plans to achieve compliance with any proposed new
regulation to which OCC is subject.
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\5\ 15 U.S.C. 78q-1.
\6\ 15 U.S.C. 78q-1(b)(3)(A).
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OCC believes the proposed rule change is also consistent with the
requirements in Rule 17Ad-22(e)(2)(i) \7\ and (v) \8\ 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. The proposed rule change is also consistent with the
requirement to have governance arrangements that specify clear and
direct lines of responsibility because the Committee Charter would
provide a clear statement of the functions and responsibilities of the
Committee. For example, the proposed Committee Charter would provide
that, among other things, the Committee would make recommendations to
the Board as it deems appropriate, and as the Board may request.
Additionally, the proposed Committee Charter would provide that nothing
in the Committee Charter alters the existing roles and responsibilities
of other Board Committees. Finally, including the Committee in the By-
Laws and Board Charter provides for consistency with how other
committees of the Board are represented in the By-Laws and Board
Charter.
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\7\ 17 CFR 240.17Ad-22(e)(2)(i).
\8\ 17 CFR 240.17Ad-22(e)(2)(v).
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OCC also believes that the proposed rule change is consistent with
the requirement in Rule 17Ad-22(e)(3)(i) \9\ 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. For
example, the Committee Charter would provide that, among other things,
the Committee would oversee, and assist the Board in evaluating, OCC's
efforts to demonstrate compliance with applicable laws and regulations,
including banking and securities laws and other applicable regulatory
guidance and standards, through regular reporting to the Committee by
the RCOG. Additionally, the Committee Charter would provide that the
Committee will review the Committee Charter at least once every twelve
months and submit the Committee Charter to the Board for approval, with
such changes, if any, as the Committee deems advisable.
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\9\ 17 CFR 240.17Ad-22(e)(3)(i).
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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
OCC does not believe that the proposed rule change would impact or
impose any burden on competition.\10\ The proposed rule change
addresses one charter used in OCC's governance structure, and all
Clearing Members would be equally subject to these governance
arrangements. Consequently, the Committee Charter, By-Laws and Board
Charter 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.
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\10\ 15 U.S.C. 78q-1(b)(3)(I).
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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 Exchange 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-2019-008 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-2019-008. 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
[[Page 54243]]
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-2019-008 and
should be submitted on or before October 30, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Jill M. Petersen,
Assistant Secretary.
[FR Doc. 2019-22025 Filed 10-8-19; 8:45 am]
BILLING CODE 8011-01-P